Student Loans

There are numerous options available for financing your education. The problem is that with so many different types of student loans, containing different terms and conditions it can be difficult to choose the right financing.

The Stafford loan is a popular choice. There are many benefits to this loan which draws many students to consider it as a good option.

The Stafford loan is an attractive choice because payments are not required until after the student has finished his education, as long as the student maintains a minimum half-time class schedule. After a student has finished his education he has six months before he is required to begin making payments. Another benefit is that you may prepay without penalty. It is easy to qualify for a Stafford loan because there is no credit check.

There are a few drawbacks to this type of loan. The interest rates appear to be low when compared to other loans, however at times the loan fees can be costly. For example, a Federal default fee of 1% or an origination fee of 2% may be added. Also, there is a cap on the amount they will lend you during the course of a year.

Further, there are plans in which the repayment is made over a 10-year period. That may sound attractive given the relatively low monthly payment it typically entails ($116 per month in the following example). But the amount of interest accumulated on a 7% loan of $10,000 (and most students borrow more) over 10 years is: $3,933. That’s over 39% of the original amount paid in interest. Definitely, not cheap money.

Because of this students may find that other options may be worth considering. Conventional loans may require the student to work part-time to begin payments right away. But in the long run it could save a lot of money. Taking advantage of scholarships or grants could help offset the cost. Many parents have found that when helping their children pay for their education it is wise to explore their options as well.

Savings plans, of course, are one of the best options to investigate and the sooner they’re started in the child’s life the better. The risk with all such plans is that inflation, financial crises, and other unpredictable elements can cause that investment to be worth very little by the time it is needed.

With a little research you may be able to counteract that risk. It is wise to check into inflation-adjusted hedge funds or tax-free municipal bounds.

The cost of education is ever increasing and sadly it is difficult to meet the demands. However, researching the different financing options available will result in better peace of mind and successful decisions.