Financing Education Through School Loans

Parents dream many dreams for their children and the biggest dream of them all may be to provide the best possible education to their children; for everybody knows today that the key to success lies there and it is the biggest asset that a parent can give its child. The world we live in today is a highly competitive one almost on the borderlines of the concept of survival of the fittest.

Just as much as providing a sound education to one’s children is the biggest dream in one context, in another context, education is now the biggest nightmare as well of many a parent, splitting their brains over ways and means of finding the additional funds needed to pay for their children’s education especially as the children grow older while keeping the home fires burning.

The way educational costs are soaring day after day, parents have a big fight on their hands to give a decent college education to even one of their children as it would mean a big slice off the take home pay of an average parent. Parents may sometimes have the incredible experience of seeing their savings piled up over several years just vanish paying only for the first year or maybe even the first semester of one child! In case the child decides to pursue further higher studies with some ambitious degree or diploma on their sights, paying for these costs could become a significant strain on the finances of the parents at least as long as the education lasts, and in many cases, even beyond.

But fortunately the parents’ or the students’ dilemma does not start and end there. Federal government has thought it fit to assume responsibility for this precarious situation and moved in with a series of low interest bearing students loan packages with affordable repayment programs in addition to options for further deferments if need be. Many private lenders too have followed suit offering similar packages with of course a little higher interest rates than in the case of federal loans.

Federal loans, through three main types of loans categories named Perkins, Stafford and PLUS offer varying packages with regard to financial aid to suit different needs of students / parents placed in diverse situations and circumstances. These loans programs definitely go a long way in relieving the burdensome expenses of education. In order to qualify for most of these lowest interest bearing federal loans, the student has to show a need for the financial aid but are not required to submit to a credit check except in the case of PLUS Loans which are actually issued to parents of dependent undergraduate children and carry a little higher rate of interest than in the case of Stafford and Perkins loans.

A special characteristic of the Subsidized Stafford Loan which is the most economical out all federal loans next to a scarce Perkins Loan (as distinct from the Unsubsidized Stafford Loan) is that the government pays the interest on the loan until the student graduates. The extent of borrowing allowed is limited and does not cover the connected expenses of college education such as cost of tuition, books, computers and board and lodging.

Due to this limitation in federal loans, college students turn to Private Loans (that carry a higher rate of interest) as a supplement to the federal loans that do not cover the total costs of education as already stated above. You also have to show a good credit score to obtain a private loan. If you cannot qualify on your own worth with your credit score, you can get a cosigner of good credit standing to support your loan application.

Although private lenders usually do not place a limit on the amount that may be borrowed, nevertheless the amount lent will depend on your credit score, alone or jointly with the cosigner. Rate of interest and other credit terms will vary depending on the lender; and as such before taking a private loan it is pertinent to search for many private lenders of prominence, and visit their websites to extract their respective terms and rates and do a thorough research as to which lender has the best solution to suit your particular situation.

Private lenders too will give you options of deferment, but you will have to pay the accrued interest thereon further adding to the ultimate total cost of the loan. Having researched and minimized your final selection to a handful of potential private lenders, you will do well to then go to each lender and negotiate to obtain the best terms possible either on your own credit standing or with the support of a cosigner.

Remember that your financial aid obtained at great cost and tremendous sacrifices for the future (at least until you complete the repayment of loans) should be invested wisely to obtain the maximum value for money. It would be a good idea to consult a financial counselor who could be trusted (with caution) since even financial institutions, colleges etc. receive commissions and kickbacks from the private lenders for facilitating business.

In order to make the best use of your loans, your first endeavor should be to reduce the cost of your finance by choosing one or if not, a combination of loans comprising of grants scholarships, subsidized loans; and going for other loans carrying little higher interest rates only after exhausting all options for obtaining any more of the low cost loans of the former types. The next step should be to calculate what your total monthly installment would be once repayments start after graduation. This procedure should better be adopted at the point of taking every new loan.

When taking more and more loans annually over the period of your graduation to meet more and more new educational expenses you must try to take the loans in a more organized manner instead of in a haphazard manner bearing in mind that when you start repaying, the monthly outgoing on these loans should not cause an undue strain on your estimated income at that future date.

Hence, you should all along have a clear and unwavering ambition as to your chosen profession and also what salary or income level you are driving at. However, for purposes of estimating your monthly budget immediately after you secure employment to a reasonable level of accuracy and reliability, you should not confuse your initial salary with what others employed in the same profession are drawing after about five to six years in employment.

Remember your initial salary would be far less; and finalize your calculations accordingly. However, although you may be able to get your monthly installment adjusted to an affordable level by negotiating with the respective lenders to stretch out you repayment schedules at the point of taking every new loan, you should not forget that stretching out repayments means increasing your ultimate total cost.

But you have to live comfortably and without much strain on your finances especially in the first few years of employment when several other changes to your lifestyle may have to be contemplated such as moving to a house of your own and buying your own car etc., if not beginning a new family life as well!

Therefore, once you have your figures and options straightened out and clear, you can do the final balancing trick according to your wishes with the confidence that you are not making a mess of your life by undertaking commitments that you will be very hard pressed to meet. It is also equally or more important to ensure you are not paying too high a price for an unnecessary level of luxurious living immediately after starting employment by reducing the monthly installment to an unnecessarily low figure at the cost of incurring additional interest by lengthening the period of repayment.

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