Student Loans

There are more types of student loans available in financial aid today, to students and parents than there ever has been before. Financial aid, as the name suggests, is money that students and their parents get from scholarships, Federal and private lenders and a few other sources, to aid students in paying for education.

Fact: Over the past 40 years, just as with everything else, the cost of education has risen dramatically. Average tuition increases of more than 6% per year are common today. Just as one example, in 1973 the cost of registration at UCLA (University of California, Los Angeles) was $208 per quarter. It is now over $2,300 per quarter.

That ten times increase is not too unusual - many things cost ten times what they did a few decades ago. Income, on the other hand, has risen about three times in the same period, from about $15,000-$30,000 per year to around $39,000-$42,000. The numbers vary by gender, age and more but as a rough guide, the lower range ~3:1 ratio is about right.

Once upon a time, students could depend almost entirely on Pell Grants and Stafford Student Loans to finance their education costs, if not complete living expenses. Pell Grants are still given, but they're need-based and represent a small percentage of the education cost today. Stafford Loans are also need-based, and can range from 25%-40% of the average cost of financing school. Perkins Loans are similar, but reserved for the lowest income families.

Fortunately, PLUS Student Loans are available, which was not an option 35 years ago. These are loans to parents, not students, to help pay for the student's education. The interest rates are average, and there are certain restrictions and fees, but they often form part of the total package.

A word to the wise about fees in general. Many loans are nominally for a specified amount, say $4,000 per year disbursed in two payments (one per semester). But it's not uncommon for up to 4% in fees to be deducted from that amount before any funds are distributed. That 4% on $4,000 equals $160 you never see, yet have to repay. Be sure to look for low or no-fee loans.

Though Federal loan programs, like the FFELP (Federal Family Education Loan Program) and the subsidized Stafford and others, carry no credit check and low fees and interest is paid by the government, they are not the only source of financial aid today.

The average financial aid package today will be a complex mixture of grants, scholarships (if possible), Federal and (probably) private loans. Rates range from 5% (Perkins) to the more common 6.8% or higher. With the recent large increase in defaults on sub-prime lending (mostly for mortgages), lenders are going to be more strict than before about credit history and income.

The best way to get started is to look at tables of the most common loan programs, what interest rates and fees they carry along with any eligibility requirements. One excellent site that summarizes much of that information can be found at http://www.finaid.org/.

Student Loans Articles:

• Best Choices For Financing Your College Education
• How to Choose a Student Loan Lender
• Tax Benefits For Student Loan Borrowers

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