Nice cars, apartments, new phones and independence are things most college students want to have, but would taking out a loan be the best way to get those things?
Ghassem Homaifar, professor of economics and finance, says “no.” He said unless a student is taking out a loan for tuition and books, it is unnecessary. These other items are considered a luxury, not a necessity, and will add up over time.
“Students should limit their borrowing to the essentials,” Homaifar says. “They should do anything and everything not to borrow.”
Though the ideal situation is to not borrow money for education, sometimes it is the only solution. Before students or parents sign on the dotted line, there are a few things they should know about loans but usually don’t.
According to wisegeek.com, there are three types of loans students can access.
Federal Stafford loans are based on financial need and are handled by the government. There are two kinds of Stafford loans: subsidized and unsubsidized.
The subsidized Stafford loans are long term and need based with low interest rates. Subsidized means that the government will pay the interest of this loan while the student is still in school, if they request a grace period or ask for a deferment.
Unsubsidized loans are long term, non-need based loans with low interest rates. This loan is best for students who don’t qualify for other financial aid or who will need additional money.
Federal Plus Loans are taken out by the parents of students and determined by credit history and tuition cost. This is a low-interest loan where payments begin 60-90 days after the student graduates.
The final type of loan is the Federal Perkins Loan. This is based on the extreme financial need of the student, and the amount of money that can be borrowed is limited. The interest rate of this loan doesn’t begin until nine months after a student drops below full-time or graduates.
Homaifar said that the first thing to understand about a loan is whether it’s guaranteed. A loan guarantee states that the government will take up the private debt obligation if the borrower defaults on payments.
The next step is to find out the interest rate of the loan that the student may be considering. Interest rates are the extra money a borrower must pay to the lender for borrowing the money. Usually on student loans the interest rate will be lower than normal loans, but that doesn’t mean this fact should be scanned over. The student will have to pay an interest rate on any loan, so they might as well get the lowest one possible.
The next thing to know about loans are the terms and conditions with which they come.
There are many different types of loans to choose from. How long you will have to pay back a loan and regulations to obtain a loan are things students should consider when taking out loans. All information is crucial when deciding on this matter.
The last step is for students to realize what they’re getting themselves into. Students should be as knowledgeable as possible about the economics that come with an education.
If they aren’t, then taking out a “few” loans can make their lives a lot harder by adding a large financial burden that can take years to correct.
The U.S. Department of Education said that last year, 6.7 percent of students defaulted on their loans, an increase from 5.2 percent the previous year.
That means from 2007 to 2008, a quarter of a million student loan borrowers went into default.
According to finaid.org, there are numerous consequences if a student defaults on his or her loan.
The situation could be turned over to a collection agency, a student could be sued, his or her wages could be garnished, it will hurt his or her credit score and he or she won’t be able to apply for more financial aid. Not to mention, if the student defaults then someone has to pay it back, and that will be the American taxpayers.
Shere Ramsey, senior psychology major who has a student loan, said that defaulting has been on her mind since she applied for the loan.
“It’s a scary thing to think about,” Ramsey says. “It can ruin my future if I don’t pay back this loan once I graduate.”
Borrowing isn’t bad when a student or parent is completely informed and definitely sure that a loan is the best way to pay for education.
David Hutton, director of financial aid and scholarships, says that if a student is responsible with borrowing then there is nothing wrong with loans. The reward of gaining the education is worth the cost if borrowing is the only alternative.
“You have to think about where you would have been without the loan because then you wouldn’t have your education,” Hutton says.
There are many resources with more information about loans. Students can visit the financial aid office on campus. Go to finaid.org to see a database of information on loans or search bookstores for books about student loans.
Students need college loan education
Published: Monday, November 9, 2009
Updated: Monday, November 9, 2009 01:11
 "Photo: N/A")
Be the first to comment on this article!