Student Financial Aid: Leveraging Debt During and After College
Going into debt is always a route you want to avoid, but in today’s world, debt is sometimes unavoidable. For many young people, the debt looming over their heads comes from student financial loans. But student financial loans are not like other loans; there are pros and cons to them, and if handled properly, a student can use them for college and not graduate crushed by the debt they represent.
If you must take out a student loan, think subsidized
There are a few types of student financial aid options. The most desirable among them, of course, are grants and scholarships, as they do not have to be paid back. From there, there are the loans: direct subsidized, direct unsubsidized, direct PLUS, Perkins, and private loans. Direct subsidized and unsubsidized can be obtained by the student by himself and do not require a parents’ co-signature. The direct PLUS loan, however, requires that the student’s parent signs the loan as well, unless the student is a graduate student. All three of these loans have a government-set interest rate, but what is exceptional about the subsidized loan is that interest does not accrue until six months after the student has graduated (or after the student has enrolled in less than 12 credit hours). Even the Perkins loan, which is offered by select schools, accrues interest while the student is enrolled full-time. Therefore, if you’re considering taking out a loan in the first place, go with the subsidized loans if possible. A last resort should be private loans, as they must be paid per month (while the student is enrolled) or interest will accrue, and often times, the interest rates are neither fixed nor as low as the government-set interest rates (3.86% for undergraduate direct subsidized and unsubsidized loans; 6.41% for PLUS loans; 5% for Perkins as of 2014).
Make Payments – Regardless
It’s easy to get caught up in the whirlwind that is college, but remember: after college, you have loans to pay off. Get into the habit of paying a small, fixed amount per month while you’re in school. If you have any loans other than subsidized loans, this will keep your interest at bay. Also, making early payments makes your credit look better and helps to pay off your loan quicker. Once you’ve graduated, the loan repayment won’t be as much as a shock.
Consider a major with a high payoff or a major that offers loan forgiveness
Many majors, such as teaching, offer loan forgiveness. For example, if you work in an urban area for ten years, what is left of your student debt will be forgiven. Also, programs such as AmeriCorps and the Peace Corps offer loan forbearance during the time you serve as a volunteer. Finally, consider a major that will pay off quickly such as nursing or business administration.
Student financial debt does not have to be as looming as many make it out to be. Remember, you are investing in your future. An education is important, and managing your loans is not difficult when you have a plan set in motion.
Information provided by Mclay and Company, an Ontario bankruptcy attorney.