College Student Finances
The world of financial aid can be daunting if you’re just out of high school or are getting a loan for the first time. Banks prey on the ignorance of students to con them into student loans that they may or may not need. Below you will find all of the basics about financial aid to help you make the best decision about what type of aid you may need, what type of aid you can receive, and how to go about getting everything together.
Who Needs Financial Aid?
Most people don’t have enough money out of pocket or through their salary to cover all of the costs of the college lifestyle. Because of that reason, students often have to take out student loans from banks or student organizations to help foot the bill for the four or five years they attend college. Student loans are for anyone that can’t afford to handle all of their monthly expenses plus the cost of college tuition. If you won’t be able to live and go to school, financial aid may be for you.
How Much Am I Eligible For?
If you decide to go with the route of financial aid, the next step is figuring out how much money you’re going to be eligible for. Banks and student organizations look at your current financial situation and determine how much money you can be awarded and loaned. Financial aid eligibility is measured using the following three factors.
- Cost of the School: Whether or not you got to a public, private university will determine the cost of schooling by price gaps. Private schools are generally much more expensive than public institutions, so deciding on going to a private institution or pursue an online college degree programs can mean the difference between a low cost education and one that requires financial aid.
- Parental Contributions: Next, after the cost of the school has been determined, banks and aid groups look at how much your parents are capable of providing to you each year for your schooling. Based on your parents’ tax statements and yearly income, it can be determined how much they’re capable of contributing to the cause.
- Personal Contributions: If you have a part time job or any source of income in your life, you can guarantee that it will be taken into account as money that can be put towards the cost of living.
All of these factors come together to determine how much money you’re still in need of each year to pay for your schooling bills. Say your yearly tuition will be $15,000. If your parents are determined to be able to provide $5,000 and you $2,000, that still leaves $8,000 to be paid. Financial aid institutions will use this number as the baseline for how much money they need to get you in loans, grants, and scholarships.
Types of Financial Aid
Free Money: If you play your cards right in high school, chances are you’ll be eligible for free money from different institutions. There are a plethora of scholarships and grants that are given out to different ethnic groups and outstanding students. Free money is obviously the best way to get financial backing for your education. Free money is money that doesn’t have to repaid to anyone after graduation and no matter what happens, it’s yours to keep.
Loans: For most students, free money is rarely enough to cover the cost of everything. That’s where loans come in. Student loans are specialty loans that are designed with the student in mind. They’re built around federal student loan guidelines that defer payments for a few years after graduating. In most cases, student loans are deferred to up to ten years after graduation, meaning that you’re allowed to finish off your schooling and get a job before you have to worry about paying the money back. But as with any loan, there’s always a catch….
The Pros and Cons of Financial Aid (Loans)
There are a few ups and downs to the different types of financial aid that are out there. Some types of financial aid don’t require any repayment a few years down the line, while others like loans, do. The upside to getting a loan is that you’ll easily get the money you need to complete your education without having to worry about repayment until after you graduate. It takes a lot of the stress away from worrying about paying your loan back while you have exams and studies on your mind. But even though student loans can help a student achieve their academic dreams, there are a few downsides.
Private student loans, or ones that are given out by banks and private lenders as opposed to the more lenient federal aid, can be a burden if you don’t read the fine print. One of the biggest drawbacks on private student loans is the inability to escape them. What does that mean? Well, other loans that banks give out are expected to be repaid except in extreme conditions. If you file for bankruptcy, in normal circumstances, your debts are wiped clean and your credit plummets, but at least there’s a way out of the loans if you need it. With private student loans the terms are a little different. Student loans can’t be opted out of if you run into financial trouble. Student loans will follow you around until you’re capable of paying them back, no matter the circumstances.
Many students get themselves trapped into loans where they don’t understand the terms of the agreement and get into trouble. Banks like to trick students into high interest rates loans with short repayment times which can lead to stress and frustration down the line. Be sure to read all of the fine print of a loan before signing on the dotted line. Remember that borrowing money from a bank is no small commitment. It is expected to be repaid in full in a timely manner, and unless you’re sure you can commit to something like that, it may be time to look at a cheaper school.
Sample Rates and Loan Info
To help you better understand what a student loan says and what it means to you as a student, let’s take a look at some sample information from the popular bank Wachovia.
Scrolling down to the loan rates and information, you can see that they offer variable APR at about 3.4%. This means that you can borrow money with an interest rate of 3.4% when it comes time to pay. Anything less than 5% is typically considered to be a good rate to lock in at. Banks that don’t openly advertise their interest rates on student loans usually have something to hide.
Moving down in the list of information you can see that Wachovia offers an opportunity to get a rate reduction after you graduate from school. The terms of this reduction are probably difficult to achieve, so don’t plan on receiving any of the discounts they advertise, but a .75% rate reduction would be something to look into upon signing the loan. Immediately after that is one of the biggest clauses of the loan. Wachovia offers the ability to defer loan payment until after graduation, which is a nice benefit to students that want to focus on their studies instead of trying to pay off a loan while in school. This freedom can be both beneficial and dangerous. If you’re not careful with your finances after graduation you may find trouble paying back the loan as you should. Years of nonpayment can become an uncomfortable mindset to be in when it’s finally time to start paying the loan back.
The last important thing to notice about any loan is how much the loan will award you each year. In the case of Wachovia, they offer up to $25,000 a year for student needs. In most cases, this amount will never be loaned out. Most students get about 50-75% of the advertised “up to” amount to use as they desire. And because of the economic downturn that occurred recently, expect banks to try and loan you as little money as possible with the highest payback terms.
- Shop Around: If you have to get additional financial aid in the form of loans from a bank, be sure to check multiple banks and lending agencies and play them against each other to try and negotiate better terms. There are hundreds of different places to borrow money from, so there’s no reason that you can’t get almost exactly what you’re looking for out of your student loan.
- Read the Terms: This point can’t be reiterated enough. Read the terms of the lease in full before signing anything. And if you don’t understand all of the technical language, get one of your law student friends to break everything down for you. There’s nothing worse than getting into a loan agreement that you can’t get out of.
- Set Money Aside: Even though you’re borrowing money to spend on all of your student finances, if you have any money leftover each month after your loan, it’s important not to get careless with your cash. Try and set aside any money you can to pay back your student loans when you graduate. Planning ahead is the best way to get your loan paid back when you make it out of school.
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