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About this blog: I post articles to offer timely and substantive college admission guidance on important topics and issues. Originally from New York, I have a B.S. from Hunter College in NYC and advanced professional degrees from the University of...  (More)

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When Student Loans Make Sense

Uploaded: Dec 27, 2015
Elizabeth LaScala Ph.D. guides families through the complex world of college and graduate school admissions. She helps students identify majors and career paths, develops best fit college lists, and provides essay and personal statement coaching as well as application support to help students tackle each step of the process with confidence and success. Each cycle 90% of Elizabeth’s students get into one or more of their top choice colleges. Elizabeth also helps families maximize opportunities for scholarships and financial aid awards. Visit; Call (925) 385-0562; or email elizabeth@doingcollege.com

Student loans are often viewed negatively because they are associated with the rising cost of higher education. Yet many students could not go to college without the help of a loan. If you choose and use a loan judiciously, it can build a sound credit history, add value to your life now and help you prepare for your future. It is common for many families who have the ability to pay full college costs to include a loan in their plan to fund college so the student can be a stakeholder in his or her own education. Other families do so to relieve the strain of high tuition payments, even if they do not qualify for need-based financial aid.

Federally-funded student loans come in two forms: Direct Subsidized Loans and Direct Unsubsidized Loans. Direct Subsidized Loans are available only to undergraduate students with demonstrated financial need; the principal is decided by the college’s financial aid office, after considering other aid that the student has received. Direct Unsubsidized Loans are available all undergraduate students with no requirement to demonstrate need. With Direct Subsidized loans, the Federal Government pays the interest while a student is in school. With Direct Unsubsidized loans students and parents must pay the interest while the student is in school. If they cannot, the interest will accrue (accumulate) and be capitalized. The interest is added to the principal amount of the loan.

According to the U.S Department of Education, dependent undergraduate students and their families may not borrow more than $31,000 in Direct Subsidized and Direct Unsubsidized Loans as they pursue their degree. No more than $23,000 of this amount may be in Direct Subsidized Loans. Students who have demonstrated financial need should be able to avoid paying interest early in their undergraduate education. But it might become unavoidable towards the end, especially for a student who needs more than four years to complete their degree. Be wary of taking too much time. Federal regulations limit the amount of time that students may borrow to six years to cover the costs towards an undergraduate degree.

The interest rate on the Direct Student Loan Program is fixed for the current year at 4.29 percent. Student loan interest rates are tied to the 10-year Treasury bill and are expected to rise in future years. A handy tool to estimate the annual salary one needs to pay back a specific amount of loan can be found at the smart student's guide to financial aid.

The Department of Education provides very clear and annually updated guidelines to the affordability of college and reasonable levels of college debt. Go directly here to learn more. The Department also provides a handy student repaying your loan guide for college students.

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