Being Smart with Student Loans

March 20, 2012

The economy has raised several questions for students who are struggling to pay the rising costs of tuition and living expenses. Even with financial aid, grants and scholarships don't always cover the extra expenses, such as supplies, fees, books and boarding. There is also that pesky habit of needing to eat every once in a while. Students often have juggled school and employment, but one of the restrictions of getting full financial aid is that you go to school full time. That means working full time and taking a full course load, which is impossible with some degree programs. For these situations, students have turned to loans as a means to an end. However, statistics are showing that the debt from student loans is piling up and only increasing in recent years.

Lori Vedder, the Director of Financial Aid at the University of Michigan, said that thousands of dollars can add up quickly, and students have to be smart about which loans they take out to pay for school. There are those who have paid attention to the warnings, using only government subsidized loans and only accepting partial awards. Paying attention to your loan amount is just one part of the issue. You also have to pay attention to repayment plans and interest rates.

A student at University of Michigan, Amber Elling, said that she took out three loans. Two of which were in her name and one of which was a PLUS loan from her parents. Another student took out a loan by checking the Stafford Loan acceptance on his FAFSA, which added an extra $8,000 to the financial aid package. The debt from these loans will have to be paid and with interest.

Colleges and loan issuers have made some strides in educating borrows. For instance. University of Florida has an entrance and exit interview for loan borrows, where they have to take a quiz and study some facts about loans and interest rates to understand what they are borrowing and how much it will cost. The exit interview is the same, only it allows students to pick a repayment plan and see the different options. Government loans are safer choices, but they still come with interest rates.

ABA Journal reported earlier this year that on average, parents are responsible for $34,000 in student loans. This is an alarming number and simply shows that student loan debt isn't limited to the college student. The whole family can suffer from debt if it isn't repaid or doesn't pay off with a successful career afterwards.

Vedder has given many students tips on being smart about student loans, taking out only what they need and understanding the repayment options available. Students don't realize that they can choose income-based repayment options and also apply for deference if they aren't employed after graduation. You can defer loans and ask for forbearance for multiple years if you experience hardship. These options are important to take advantage of, especially if you have been unable to pay for loans for longer than three months.

Students who choose loans should make sure to talk to their financial aid advisors with any questions and also perform research on the different loan programs, scholarships and grant programs that are also available.

 

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