Are Student Loans Still a Good Bet?

Are Student Loans Still a Good Bet?

Are Student Loans Still a Good Bet?

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Are Student Loans Still a Good Bet?

By: Jeff Mictabor
Posted: Mar 04, 2011

In the mid- and late-1960s, there was no doubt among U.S. public policy makers that the federal government should be encouraging more citizens to attend and graduate from college.

Bolstered by the success of the highly popular GI Bill, which paid college expenses for military veterans, federal student accommodation were hailed as a “GI Bill for all Americans.” These low-interest accommodation allowed students from modest means to attend college in numbers never before seen. The college graduation rate, which had hovered around 7 to 8 percent, steadily climbed to today’s rate of nearly 30 percent.

Backing the idea that higher education is nearly universally better than entering the workforce straight out of high school were statistics that showed that college graduates, on average, would benefit from as much as million more in lifetime earnings than students who didn’t graduate with a post-secondary degree.

At the same time, however, the cost of a college education began to rise much faster than the rate of inflation, meaning that families began to have to devote more of their overall income to paying for college costs. With annual college tuition climbing into the tens of thousands of USD, college expenses have outstripped even generous incomes, and students have had to turn increasingly to college accommodation to pay for their education.

Today, about two-thirds of college students take out student accommodation to help pay for their education. These students leave college with an average of ,186 in school loan debt, according to FinAid.org.

This figure is less than the average cost of a new car in 2010 (,217), and most new car accommodation are paid off in five to six years, with an interest rate comparable to the rates on federal education accommodation.

So why are so many people concerned about the cost of college accommodation?

Simply put, not all college accommodation are created equal.

Federal education accommodation are issued directly by the federal government and carry a fixed interest rate, along with flexible repayment terms and multiple options for postponing or reducing one’s monthly payments based on one’s financial circumstances. Federal college accommodation are generally low-cost, low-pressure accommodation.

Private education accommodation¸ on the other hand, which are issued not by the government but by banks, credit unions, and other private-sector lenders, are variable-rate, credit-based accommodation that typically carry higher fees and rates than their federal counterparts. Private student accommodation also offer much fewer, if any options, for financially distressed borrowers to be able to postpone or reduce their payments.

One major difference between a new car loan and a student loan is the deferment period. With a car loan, payments on the principal begin immediately. A portion of every payment is used to reduce the balance owed.

In contrast, all federal education accommodation and many private education accommodation allow students to defer making any payments while they’re still in school. The repayment of the loan can be delayed for years while the student finishes school — with no delay of interest charges, however.

Except in the case of subsidized federal student accommodation — for which the government will cover the interest while a student is in school and which are awarded only to students who demonstrate the most financial need — interest begins to accumulate on college accommodation as soon as the accommodation are issued, even if a student is deferring payments.

This accumulation may take place over months or years, quietly running up the balance on a student’s school loan debt to alarmingly high levels.

Families concerned with accumulating excessive college loan debt can always decline to take on any school accommodation. Federal college accommodation awarded in a student’s financial aid package are always optional; students can turn these accommodation down if they have another financial resource and don’t want to take on the debt of school accommodation.

Students forgoing their available federal college accommodation at the beginning of the school year, however, may end up passing on this government money only to see their financial circumstances change unexpectedly mid-semester. In cases like these, students may be forced to turn to private student accommodation to bridge the financial gap.

A good strategy for college students is to first seek out college scholarships and grants and then maximize their available federal student accommodation before considering a private student loan. Private accommodation should be considered only as a last resort and only for financial emergencies that arise during the semester that other sources of financial aid can’t cover.

Students should develop a clear and detailed plan for how they’re going to pay their college expenses for each year they attend classes, especially if they plan to decline the federal school accommodation in their financial aid packages.

Having a backup plan in place to cover unexpected financial emergencies can also help reduce the need for student accommodation, as well as the overall cost of a college education.

Jeff Mictabor – About the Author:

Jeff Mictabor is an enthusiast on the topic of student loan issues in the news. He has been writing for the past 10 years for a variety of education publications. He now offers his writing services on a freelance basis.

Source: http://www.articlesbase.com/personal-finance-articles/are-student-loans-still-a-good-bet-4350394.html

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Article Tags:
student accommodation, private student accommodation, college accommodation, student loan consolidation, scholarships for students, scholarships, debt relief

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