The Aspects of Education Loans

In today's society, it is a norm and an expectation for students to pursue higher education after graduating from high school. Despite a college degree almost being deemed a prerequisite to adulthood, college tuition is on the rise, and a lot of students are left grappling with how they can afford to pay. To pay for their tuition, most students have to take out loans. The average loan repayment begins six months after graduation. Many college graduates are unable to find jobs in their career fields and have difficulties paying off their student loans. Some students don’t have a full understanding of the term of the loans and their options if they are unable to repay.

There are different types of financial aid available to students such as grants, scholarships, and loans. There are a lot of these types of financial assistance available for students to have access to. There are many websites available online that have all different types of scholarships. Grants and/or scholarships typically have a certain requirement such as race, GPA, demographics, parent’s income, etc. Grants and/or scholarships may require students to write an essay and others only require students to apply. The benefit of attaining either a grant or a scholarship is that there is no repayment.

There are two major different types of student loans; they are Federal and Private Loans. Federal loans are loans offered by the government. There are three different types of Federal Student Loans and they are Federal Stafford Loan, Federal Plus Loan, and Federal Perkin Loan.

There are two major Stafford loans: Subsidized and Unsubsidized. To be eligible for these loans, students must be registered as a full time or part-time student in an institution that is a part of the Direct Loan Program. Another requirement is that students must be in a program that will eventually lead to a certificate or degree. Subsidized Loans are offered to students based on individual needs, and this is decided based on the information given when completing FAFSA. Paul Basken states, “The federal government offers subsidized loans to college students both directly from the Education Department and indirectly through banks and other private lenders.” These loans are offered without a credit check or cosigner. There is a limit to the amount that can borrow each year, and that amount varies based on if the student is dependent or independent. The interests of subsidized loans are paid by the government while students are still enrolled in school. This means the amount that is borrowed, is the amount to be repaid. Interest starts to accumulate after students graduate or drop out and the repayment terms begin.

Unlike Subsidized Loans, Unsubsidized Loans are not offered to students based on need. It also differs from Subsidized Loans because as soon as the loan is paid out to the schools, interest immediately starts to accumulate. With the interest being accumulated, students can start paying those interests while in school, or when they graduate. If students decide to leave their interests until graduation then the amount that needs to be repaid will be higher than the amount that has been borrowed.

The Federal Plus Loans are offered to graduate students and parents of undergraduate students that need more funds for the school. For these loans, there will be a credit check for the graduate students or the parents of the students in need. There will also be fixed interest rates and loan originating fees. For the graduate students, they are required to start repaying their loans after graduation, but for the parents, they are required to start repaying their loans as soon as the loans are paid out to the schools. Parents have the option of applying for an extension until after the student graduates, but there will be additional interests added.

The Federal Perkins Loans are available to both undergraduate and graduate students that need more funds. The students have to been enrolled full time or part-time in a school that participates in the Federal Perkins Loan program. Students are recommended to apply for FAFSA early so they can qualify for this loan. Even though some students may qualify, they may not receive this loan because of the limited amount of available funds.

Many students accept the student loans offered to them because they have no other choice if they want to attend school. Some of those students don’t have a full understanding of the terms of the loans. In her book How to Find A Scholarship Online, Shannon Turlington states “Many students and their parents do not take the time to understand what may seem, at first glance”. It is very important to be informed before accepting these loans. Norma Carmona and Kim Thompson also state, “This is critical because the terms and conditions of different kinds of loans vary. For example, you are not responsible for the interest on a subsidized Stafford loan until you are in repayment. Unsubsidized Stafford loans, however, begin to accrue interest when you get the money”. These students sign the promissory notes sometimes without reading the terms laid out to them. Some students don’t think about things such as, if they don’t withdraw from a class before the deadline, they have to repay their loans in full for that class. Students also have to repay their loans even if they don’t graduate from college. Students need to be aware that after the grace period that was given ends, the loans need to start being repaid even if they don’t get a bill. Carmona and Thompson also state, “The federal loan programs offer students various options to help avoid default. When you leave college or graduate school, you are allowed a grace period -- usually a six-month period during which you are not required to make payments on your student loans.” A repayment plan is important after the grace period because it helps a student to determine what they can afford to pay each month.

Before the repayment period starts, an exit counseling session have to be completed. This session covers information about the terms of the loans and some repayment plan options. It also covers the students’ obligations about the agreement to repay their loans. The repayment plans cover the loan balance, monthly payment, years to repay and the interest added to the loan. After graduation, or some student drops out of school they have difficulty repaying their loans. Some of the repayment plans are the Extended Repayment Plan, Income-Based Repayment Plan, Pay as You Earn, Income Contingent Repayment Plan, Income Sensitive Repayment Plan, Standard Repayment Plan, and Graduated Repayment Plan.

Graduating college does not guarantee a full-time job in the industry of each graduate’s choice for each student. A lot of borrowers have difficulty repaying their loans because of low-income entry-level jobs and for others, they may have dropped out of school so their chance of finding good-paying jobs is low. Alan Greenblatt states, “Even college graduates are struggling to find jobs commensurate with their education levels — although unemployment is far worse for people without college degrees and minorities”. For some of those students, they end up in Default because they are not aware of the options available to them. When students go into Default, it means they didn’t make payments on their loans like they agreed to do. If a student missed a payment their loan becomes Delinquent after the first day of the missed payment. All delinquencies get reported to the three major credit bureaus after ninety days. Marcia Clemmitt states, “unlike consumer debtors who fall into arrears, college borrowers can have their Social Security and other federal benefits garnished — an especially frightening prospect for older students attending college to retrain for employment.” If borrowers are having problems paying their monthly payments, then they should look into their options so they can avoid going into Default. Two options to avoid Default are Deferment and Forbearance.

Deferment and Forbearance allow students to not pay or lower payment for a certain time. With Deferment depending on the kind of loans, no payment is required. Forbearance allows the borrower that are unable to make payment to not pay for a certain amount of time or reduce the amount paid each month. There are two types of Forbearance: Discretionary and Mandatory. Discretionary Forbearance is when the lender decides to grant the Forbearance and Mandatory is when certain circumstances make it so the lender has to grant Forbearance to the borrower. Carmona and Thompson also state, “If you are unable to make your monthly payment, you should contact your lender as soon as possible. Under the federal loan programs, you are allowed periods of deferment and forbearance during which you may defer, or delay, payments on your student loans. For example, you may defer payments during periods of unemployment and financial hardship.” There are other options for the borrower with certain circumstances that fall under Forgiveness, Cancellation, and Discharge. There are about nine different circumstances that fall under Forgiveness, Cancellation, and Discharge. They are Death Discharge, Discharge in Bankruptcy, Closed School Discharge, Total and Permanent Disability Discharge, Unpaid Refund Discharge, False Certification of Student Eligibility or Unauthorized Payment Discharge, Teacher Loan Forgiveness, Public Service Loan Forgiveness, and Perkins Loan Cancellation and Discharge.

The Death Discharge is in place if the borrower dies, or the parent Plus loan borrower dies then the loan is discharged. The Discharge in Bankruptcy is if it can be proven that paying back the borrower loan can cause bankruptcy. Closed School Discharge is if the school the student is attending closes before the student graduates. The Total and Permanent Disability Discharge is if the student becomes permanently disabled and the information must be given to the Department of Education. Unpaid Refund Discharge is if the borrower withdraws from school, but the school didn’t pay the refund owed to the Department of Education. False Certification of Student Eligibility or Unauthorized Payment Discharge is if the school falsely signs the student’s name on the promissory note, or if the loan was taken out under identity theft. Teacher Loan Forgiveness is for a teacher who teaches in low budget schools, and then Subsidized and Unsubsidized loans can be forgiven. Public Service Loan Forgiveness is for certain public service jobs, and they make one hundred and twenty payments towards their student loans. Perkins Loan Cancellation and Discharge are for people in some public service occupation, some or their entire student loan can be forgiven.

There are many college graduates and dropouts that are having difficulty repaying their student loans. Some of them don’t have a full understanding of the terms and conditions of those loans, and they don’t know the options that are available to them. To not go into default they need to look at their repayment plans and chose the best option. They also have the option of Deferment or Forbearance, and also the option to see if they qualify for Forgiveness, Cancellation, or Discharge. They are options available for borrowers instead of going into Default.