The rising cost of education poses a big problem for students and their parents. Tuition fees are not the only source of expenditures of a family, and that is why the opportunity to have a higher education is oftentimes sacrificed for other basic necessities. Fortunately, there is one recourse students and their parents can avail of, and this is student loans.
In line with this, student loans are funds extended to students in order to finance their education. There are two basic types of student loans. These are federal student loans and personal student loans. Federal Student Aid and Loan programs or federal loans are those provided by the federal government to fund the education of a financially incapable student, who wishes to pursue higher education. It comprises not only loans, but also other forms of aid, in which the applicant may be qualified.
The application for federal student loan is not credit-based, meaning the student can apply for this type of federal aid even though he has a bad credit record or no credit record to speak of. This is because the federal government prioritizes education. It does not expect students to have a perfect credit record, or even a credit record, traditionally. Credit will only be taken into consideration in case the student has bad credit due to failure to pay past student loans.
In applying for federal loan, the first thing to do is to file a Free Application for Federal Student Aid. After a couple of weeks, the student will receive a Student Aid Report or SAR by mail. This includes the mode and amount of payment with the percentage of interest as set by the federal formula. This will be followed by an award letter, also by mail, stating the details of the aid the student will receive from the government. The aid directly goes to the school to be used for payment of tuition fees or accepted personally by sending the award letter back.
On the other hand, private student loans are sources of funds for education provided by private lending entities, such as banks, community groups or credit unions. The main difference of this loan agreement compared to the federal aid is the weight of credit history. Private student loans take into consideration the credit history of the applicant to determine eligibility for the loan. In the event that the student has a bad credit record, the lending agency will require a cosigner having a good credit. Also, some lending companies take into consideration other factors than credit history. This may include projected income that will be sufficient to repay the loan.
Another difference is the amount of interest that the lending company will charge, which may reach up to 6%. Also, the borrower is not required to pay until the grace period set by the lender. In conclusion, educating the citizens is one of the keys in the pursuit of economic prosperity and growth of a country. Every child has the right to be educated, no matter what the cost.
Federal Student Loan is the most common college student loan. There are mainly two kinds of federal student loans i.e. subsidized and unsubsidized.
Subsidized college student loan: Government pays the interest whilst the student is attending the college.
Unsubsidized college student loan: there is no interest free period and you will have to pay the interest with principal amount, after completion of education.
Not all students qualify for a federal student loan. In case when students are unable to grab a federal student loan, there is another kind of student loan known as private student loan.
Comment by wanieda — August 22, 2008 @ 12:16 am