Student Loan Dodgers

Private student loan lenders have taken a lot of heat lately from Congress and borrowers alike. The truth, however, is that consumers overwhelmingly turn to private student loans when it comes to college education. Most private student loan lenders advise their borrowers to exhaust all other forms of financial aid before borrowing private loans, yet some students and their families turn to private funding sources first.

The interest rates on private student loans are generally higher than what you can find through the Federal government. Then why do people turn to private lenders? People choose private student loans for a few reasons.

First, the Federal government imposes lifetime borrowing caps on students and parents alike. The caps haven’t been adjusted in many years, and don’t reasonably reflect the amount of money it takes to complete an undergraduate degree. When students and their families do exhaust their Federal student loan options and personal savings, they have little choice but to look at borrowing from retirement funds, home equity, or private sources.

Second, private loan lenders offer more flexible borrowing plans than the Federal government does. Aside from being able to borrow more, private loan lenders can also include borrowing incentives that make their student loans more competitive, or give their private loans more attractive terms for a given borrower’s situation.

Third, in the past, private student loans have been relatively easy to get. This is changing, as private lenders tighten up on their lending standards. Part of the reason for the crunch is that private lenders are now finding it more difficult to sell student loans to other lenders. This inability to sell loans in bundles is considered fallout from the sub-prime mortgage problems we’re also seeing.

If you are considering a private student loan, do your research. Shop around for the best deals you can find, and carefully examine the terms and incentives a private lender is offering. A quarter-point reduction in interest may not seem like much, but over the course of a loan’s lifetime, it could add up to thousands of dollars.

If you’ve resolved to get your financial house in order in 2008, a good place to start is by consolidating your student loans If you have college loans that were issued before July 1, 2006, they’re variable interest rate student loans. This variability can destabilize your finances.

A smart move includes consolidating all of your student loans into one payment with a federal student loan consolidation. This will simplify your finances by reducing the number of payments you make each month, and will likely reduce the amount of money you pay each month. Your student loan consolidation will have a fixed interest rate, which means you’ll always know the amount of your monthly payment. If your finances are limited, you can also stretch out the repayment terms of your student loans to get a lower monthly payment.

Reducing the number of payments you make and the amount you pay each month, along with paying a fixed interest rate will help stabilize your finances and will improve your credit rating. As your finances improve, you can also increase the amount of money you pay each month. This will accelerate your student loan payoff and save interest in the end.

On the other hand, student loan debt is tax deductible, so there’s no pressing reason to pay off your student loans early. You can deduct student loan interest whether you itemize your deductions or not. Likewise, there are other tax credits you’re eligible for if you’re still enrolled in school.

If you haven’t already consolidated your student loans, make this one of your financial goals for 2008.

Students who are applying for college admission often do not consider the true cost of a college education. A student applicant’s primary concern is gaining admission to their college of choice. The cost of education does not factor in to a student’s college decisions until much later in the process.

When students do turn their attention to costs, they focus on the cost of tuition above all other expenses. This is a mistake because the other expenses – like fees, books, living expenses, and transportation costs – can increase the cost of a college education substantially.

Universities are under pressure to keep the cost of tuition down. Instead of passing along the increased costs of education in the form of tuition raises, some colleges and universities have imposed per-credit, per-class, and per-semester fees that can add as much as 40 to 50 percent to the cost of tuition. In most cases, the fees are mandatory and cannot be avoided.

To offset the out-of-pocket costs of tuition and fees, student applicants should look for grants and scholarships regularly. Most university libraries have grant and scholarship resources available to help students find unrestricted money that can be applied directly to a student’s tuition account. Scholarships and grants are the “gold standard” of financial aid. These monies do not have to be repaid. In many cases, the scholarships are not renewable, meaning that they’re a one-time-only award, and recipients will need to look for new scholarship sources each semester or year.

Federally-backed student loans are the next most desirable type of student aid. Subsidized student loans are meant for students whose family income levels fall within certain Federal guidelines. With these college loans, the Federal government pays the interest that accumulates on these student loans while the student is in school, reducing the overall amount of money a student must repay.

Unsubsidized Federal student loans are the next most desirable type of student aid. Unsubsidized student loans are available to all students, but are subject to lifetime lending caps, which may or may not cover the student’s college expenses. With unsubsidized student loans, the borrower pays the entire interest accumulation on the student loan, but payments are deferred until the student leaves the university.

Private student loans are the most widely available and flexible options, but they should be reserved for covering those costs that cannot be covered with scholarships or federal student loans. Student borrowers should shop for the best possible deals with private student loans. Often, the interest rates and borrowing terms on private student loans can mean tens of thousands of dollars in savings (or added costs!), so comparison shopping for student loans is definitely in order!

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