Student Loan Review
Student loans are an unfortunate fact of life for an increasing number of American students. It is not the aim of this page to scare you about student loans but rather, to give you some information so that you can make the choice that is best for you in regards to getting a student loan. Knowledge is power, and the more you know about what you are getting into when you sign those loan papers, the better you will be in the long run.
A survey by the National Council of Higher Education Loan Programs (NCHELP) confirmed that student loans continue to be the largest source of student aid, with approximately $29 billion for the 1995-96 federal fiscal year provided to students to meet their postsecondary educational costs. Private lenders financed over 68 percent of the total, or an estimated $19.8 billion, under the Federal Family Education Loan Program (FFELP - formerly Guaranteed Student Loans), according to the National Council of Higher Education Loan Programs (NCHELP) survey.
The most popular form of financial aid for students is Student Loans. While there are a variety of loan programs available, the largest programs are the Subsidized Federal Stafford Loans and the Unsubsidized Federal Stafford Loans.
Subsidized Federal Stafford loans are Big Business and Big Profit for a huge number of banks and finance corporations in America. While you are attending school, the Federal Government (read: The Taxpayers) pays the interest charges that accumulate on your loan.
If you have a subsidized loan, you do not pay this accumulated interest back. If your loan is unsubsidized, the accumulated interest must be paid during the term of the loan, or it can be "deferred" until you begin making payments.
For both subsidized and unsubsidized loans, most students do not make any payments on the principle OR the interest until six months after they graduate, leave school, or drop to less than half-time. If you attend school for four years and do not begin repayment until six months after you graduate, assuming you received a maximum loan every year, this can be as much as $5,200 that the Government has paid to the bank to cover your interest charges. With a subsidized loan, this is also a SAVINGS of $5,200 of the total interest charge that you would pay.
The average college undergraduate leaves school $10,000 in debt, an increase of 15 percent from last year, says the nation's largest student loan guarantee agency. The Indianapolis-based USA Group attributes the increase to higher college costs, expanded loan eligibility and the growing amount of student aid offered through loans rather than grants. Education Daily - August 14, 1996 by Rebecca S. Weiner
Unsubsidized Federal Stafford loans are also big business, except that YOU are responsible for the interest payments while you are in school. This can greatly increase the overall cost of your loan. While payment on the principle can be deferred until six months after you leave school, you are required to make payments on the interest (usually quarterly) while you are in school. In some cases, you may be permitted to defer all interest payments until you begin making payments on the loan.
Banks may encourage you to take advantage of deferring principle payments, as this increases the overall amount of interest (read: profit) that they make over the lifetime of the loan. Remember... interest will accumulate on the deferred interest! Unsubsidized Federal Stafford Loans also have a higher maximum amount that you may borrow... and ultimately pay back.
...$50.3 billion in total aid from federal, state and institutional sources was available to students in 1995-96, an increase of $3.3 billion over 1994-95. The study notes that most of that increase was in the form of loans rather than grants and that most of the increased borrowing was unsubsidized. Grants now represent 42 percent and loans 57 percent of total federal, state and institutional aid, compared with 10 years ago... College Board study, "Trends in Student Aid: 1986 to 1996
REMEMBER: YOU HAVE TO PAY BACK THE LOAN EVEN IF YOU DO NOT GRADUATE. This seems like a simple enough concept, yet in 1996 the Federal Government lost $2.7 BILLION to student loan defaults. The Government is not "guaranteeing" your ability to finish school. It's just guaranteeing that you will pay back the loan.
