Facts about Education Loans You Need to be Aware of
Education Loans: Realising Career Ambitions
Education loans make education and career ambitions achievable. It seems promising in the beginning. They take loans because they need them. Their parents don't have much savings or extra money lying around to help them get through three years of graduation. Moreover, the cost of education is at an all-time high and so are the expenses associated with it such as accommodation, travelling and textbooks. Students have no other alternative but to knock at bank counters. After a bit of briefing, students jump in the air with joy because they see their dream coming to reality. With a loan, they can graduate. After graduation, they can secure a great job and pay the debt off. Initially, it all sounds nice. There are federal loans and private loans to choose from. Most students opt for private loans since there is no specific borrowing limit. And it just takes a few days to be processed and all clear. The banks make it happen. But the reality is something else. Taking loans is easy. Show a few documents and get the cash within days. Then comes the tricky part - paying it off.
Difference between Federal Loan and Private Loan
Experts say that federal loans are made by the department of education whereas banks and credit unions issue private loans. There are three types of federal loans:
i. Stafford Loans (common amongst students who borrow in their name)
ii. Perkins Loans
iii. Parent Loans for Undergraduate Students
FinAid publisher Mark Kantrowitz explains that compared to private loans, federal loans are cheaper and have a fixed interest rate. Despite the positive difference, people opt for a private loan because it comes with a twenty-year repayment period. Moreover, the increased cost of education cannot be tackled by federal loans. It is a primary reason why people are more comfortable with private loans even though the interest rates keep increasing. People should read through the agreement, terms and conditions of the loan before signing any bank document.
Loan Facts that Everyone Should Know
As the saying goes, 'easily said than done', is true for loans. It is easy to take education loans but quite difficult to pay it off. As a matter of fact, people end up paying more than they borrowed. It is because of the rising interest rates. Banks thrive on interest rates. This is how they do business. It is important for people to know the following facts:
• National Student Loan Data System - through this, one get information about the specific bank. They can also get information about their loan.
• Payment can be deferred -if a student has taken the federal loan and has entered into a fellowship programme, they can defer the payment. Doing so allows the student not to make payments for a specified period.
• The borrower has to pay - if parents take education loans on behalf of their child, they are the ones who have to pay it. If the child remains unemployed, the parents have to pay it off anyhow!
• Dropout - if a student drops out of college or university half way, they still have to pay off the loan. Education loans have to be paid no matter what.
• Guarantor - when a person signs as a guarantor or co-signs on the loan agreement document, they equally become responsible for paying off the debt as the individual who is taking up the loan!
• Bankruptcy - if the borrower becomes bankrupt, the loan will not be forgiven. They still have to pay!
• Jobless - even if students are without a job, they still have to pay off the loan.
There is no guarantee to what happens after graduation. Some students can get jobs, and some are not. Some go for further higher education, and some continue to look for jobs. Many people are not able to get their jobs of their desire. The salary is not up to expectation. Still, they have to pay off their education loans. In doing so, they put a hold on their dreams of buying a house or a car. They put off marriage plans for two to three years and try their best to get a better job so that they can pay off the loan quickly. In the meantime, the bank increases the momentum and heightens the interest rates. People end up paying a far greater amount than they initially borrowed. Some buckle under the pressure and end up with depression. This isn't the way they planned out things.