Thursday, July 19, 2012

Student Loan Myths Debunked

The amount of incorrect information about student loans is incredible. Part of the problem is that the media goes for a headline that will get viewers and it rarely is the whole story. You see it everywhere, some sensationalized headline screaming at you, but when you read the actual article you see that there's little to support the headline. The news media has become all about ratings (read money).

The new student loan changes that were included in the Healthcare Reform Bill is a good example. The reason it was included was to help offset the cost of healthcare. How? By taking the loan guarantees away from lenders (thereby not having to pay all the unpaid student loans) and directly collecting the interest from student loans. They essentially took out the middleman who was guaranteed to not lose money and got all the profits from the interest on these loans.

And due to the interest rates being so low to banks and other lenders (like 1%) and now getting a guaranteed interest of at least 4.5%, that's a lot of money changing hands. The private lenders get even more since their rates are sometimes double the government rates. Student loans are big business and even with a high default rate, it's still a strong area of activity regardless of the economy.

OK, let's get to the biggest myths about student loans now that the government has changed many of the basic rules. I'm not sure how these myths ever got started since the language is very simple and easy to understand in the new bill. And rumors and conjecture never tell the whole story.

Student Loans Will Now Be More Expensive

The biggest changes involved extending and reducing the amount of payments after graduation. The bill reduced the payments from 15% of discretionary income to 10% and loans can be forgiven now at 20 years rather than the 25 years as it was before this bill. So these changes actually made it easier and more affordable during the pay back period.

Available Financial Aid Will Be Reduced

Financial Aid covers many areas from grants, private subsidized scholarships, college or university grants and discounts, and student loans. Due to the less than stellar economy there has been a drop in private grants and related programs but that had nothing to do with any government student loan changes. Student loans have always been the predominate method of student financial aid and are still available just as they were before any changes occurred. You won't know what you might qualify for until you go to your college Financial Aid Office and let them review your specific circumstances.

I Can't Qualify For Financial Aid Due To My Parents Income

Some Financial Aid is based on need and financial status of parents. But most colleges review the whole picture and not just the income levels. Even if the parents make a good income they may have 3 kids in college or even high medical expenses or other factors that limit their ability to pay for college. And many scholarships are based on achievements, not financial status. Private grants and subsidized programs are based on other criteria than financial needs (a good example is if you or your parents work for a company that offers financial aid for college). It's highly recommended that anyone who is attending college go to their Financial Aid Office and let them determine what you qualify for since they are the most credible source.

The bottom line on Financial Aid is that each college may have different programs and resources. And the best way to find out the facts is to go find out at your college's Financial Aid Office. The colleges are the best source for any type of financial aid and will work with you to find any that you qualify for from all possible resources.


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