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Student Debt in America
June 18, 2009 by DebtGeniusNo Comments Tweet this post
Student Debt in America
Every year student debt in America reaches an all-time high. College is expensive and it’s only getting worse, as tuition has been rising at a rate double that of the cost of living. Figuring out how to pay for college isn’t easy. Students who choose to work while going to school usually see their grades take a slight dip due to extremely busy schedules. While a student loan is necessary and is considered good debt, students should understand that it is not their only option when obtaining funds for their College education.
Let’s take a look at some of the various financial options for students looking to pay for their education expenses:
Private Student Loans
Private or alternative loans have become increasingly popular for students as of late. This is somewhat unfortunate because these loans have higher interest rates and less favorable terms for the borrower. Last year, students borrowed $18.5 billion from private lenders, up 6 percent from the 2005-2006 school year, and now equal to 25% of all student loans in America.
Private student loans have higher limits and no payments until after graduation, although interest will start to accrue immediately. Private loans may be used for any education related expenses such as tuition, room and board, books, computers, and more. Private loans can also be used to supplement federal student loans when federal loans, grants and work study are not enough to cover the cost of education.
Most private loans are based on one or more national interest rates, such as the Wall Street Journal Prime rate. Because private loans are based on the credit history of the applicant, an overhead will be charged and will vary by borrower. Students and Parents with good credit receive lower rates and smaller loan fees than those with less than perfect credit.
Federal Student Loans
Pretty much all students are eligible to receive federal loans, regardless of credit score, co-signer or other financial difficulties. These loans offer a grace period of six months, which means that no payments are due until six months after graduation or if the borrower becomes less than a half time student.
Payments and Default
The terms of the loans are described in Title IV of the Higher Education Act of 1965 and its amendments, which guarantee repayment to the lender if a student defaults. Because the loans are guaranteed by the US Government, they are offered at a lower interest rate than the borrower would otherwise be able to get for a private loan. On the other hand, there are strict borrowing limits on Stafford loans.
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Tags: American Debt, global debt
