This is the first in a series of blog posts about money matters. Today's edition discusses student loans.
For many parents and students, affording a college education is becoming increasingly difficult. Whether it is looking towards graduation and thinking about how to pay off loans, or it is an interest in obtaining a loan now, it is important to understand the options in the loan market. While every loan is different, they are all similar in that loans are borrowed money that must be paid back, with interest, upon leaving school or completing an education. The most significant variation between loans is the source of the money: loans are either public and come from the federal government, or are private and are funded by private companies or corporations.
When beginning the loan process, the first step is to check eligibility for a public loan. Public loans are often preferable because they have low interest rates which are set and capped by the federal government. To check public loan eligibility, fill out a Free Application for Federal Student Aid, which can be done on the
FAFSA website. If qualification for public loans does not exist, then begin the application process for private loans, which are available through most banks and lending agencies.
Repayment of loans usually begins six or nine months at the end of an education, whether upon graduation or simply leaving school early. It is important to stick to the repayment schedule and to make the payments in full and on time. If loan repayments are not made in full and on time, this may result in a default on loans, which will have serious and long-term consequences. Bad credit early on in life could have negative implications on future decisions, such as purchasing a car or a home. For public loans received during school, there is the option to consolidate different types of federal loans in order to simplify the repayment process. Loan consolidation offers benefits such as a fixed interest rate and the opportunity to make only one payment per month. For more information on loan consolidation and to apply for a Direct Loan Consolidation, visit www.loanconsolidation.ed.gov.
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Repayment
Plan
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Description
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Standard
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Pay a
fixed amount each month for ten years
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Graduated
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Payments
start out low in the beginning of ten year payment period and gradually
increase
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Extended
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Payments
are extended beyond standard pay period, usually 12-30 years
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Income-sensitive
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Monthly
payments are adjusted depending on annual income
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