Student Loans
Overview
Many of the readers of this site are college students, and as a result student loans are a very important topic to them. Basically, student loans hit the sum of $61.3 billion by 2004. In addition, half the graduates of four year college degree programs are in debt. The average amount owed upon graduation is $10,000 and rapidly rising. However, this is only the average, and many students owe much more.
Why Managing Student Loans Well is Important
Being in control of your loan situation and learning where the best deals are can save help you greatly. There are many different options, and some can save you thousands of dollars in the long run. It is important to know what is out there so that you can make the best choice for you.
Federal Loans
In general, Federal loans are the best deals for students. The government wants more people to go to college so that there are more skilled workers, and as a result they are willing to lend money at lower rates than many other institutions in the country. Here are a few of the best options:
- Perkins loans for students with exceptional financial need accumulate no interest during school and grace periods, and the interest rate during repayment is 5%.
- Stafford loans offer the lowest interest rates -- currently 4.7% during in-school, grace, and deferment periods, and 5.3% during repayment -- plus a variety of repayment options, long repayment periods, and special deferments. The interest rate for Stafford loans is variable and may change annually on July 1 but will never exceed 8.25%.
- Parent Loan for Undergraduate Students (PLUS) is a program of federal loans with a current interest rate of 6.1%. As with the Stafford, the rates may change annually on July 1. PLUS loan rates will never exceed 9%.
- SMART LOAN consolidation accounts allow some borrowers to consolidate multiple student loans into one federal loan with one monthly payment -- in some cases with a lower monthly payment and a longer term than the underlying loans. Interest rates vary based on the borrower's underlying loan rates but generally range from 4.75% to 6.125%.
Private Loans
Private loans generally have significantly higher interest rates than federal loans. However, federal loans often have per-year and per-student maximums, so private loans may be necessary to pay the balance. Sallie Mae is the largest private lender, but you should definitely look into other options as well if you want to borrow money from private lenders.
Your College Education
Your education is worth every penny. Even though you may be in heavy debt from the loans that you take out, your degree and the skills you gain in college will pay off for themselves. Your college education is one of the strongest investments that you can make.