What Kind Of Asian Are You? Where Are You Really From?
Charles Cole III: Our Black Boys...
If you require loans to pay for your education – or your child's – you need to arm yourself with information to be a smart borrower. Here are five facts you should know in order to do just that.
Fact #1: You can eliminate or reduce student loans by squeezing more free financial aid out of a school
Slash your need for student loans by getting your college to give you a better financial aid package – especially scholarships, grants or work-study awards. You may be able to do this if your family situation has changed substantially since you applied for aid (i.e. a divorce among the parents, a death of the family's main breadwinner, serious illness, etc.).
At your request, a helpful financial aid counselor may also reconsider your initial financial aid award if you can demonstrate that the package offered is significantly less (at least $2,000 or so) than the cost of attending the school.
Fact #2: Student loan rates and terms are negotiable
Every July 1, Congress adjusts the interest rate caps charged on federal student loans. However, contrary to popular belief, Congress doesn't "set" the rates for federal student loans. Instead, the feds impose a "maximum" interest rate that lenders can charge, then lenders set their own rates based on what the market will bear.
Therefore, if you're willing to negotiate and ask for more favorable rates and loan terms, you can find many lenders that will agree to charge a lower rate than the federal maximum interest rate. Ask for lower interest rates based on:
a) Having payments automatically deducted from your checking/savings account.
b) Making a set number of 'on time' payments (24 to 48 months of on-time payments often qualifies you for a rate cut, and a few lenders will give you break even sooner).
c) Earning good grades or qualifying for any other incentive programs a lender offers.
Fact #3: If you must borrow, always seek federal loans first – not private loans
Federal student loans have better loan forgiveness, forbearance and deferment options than do private loans. They're also much cheaper loans – and they'll be even less costly in the near future. Right now, the federal cap on Stafford Loans, the most common type of federal student loan, is fixed at 6.8 percent for undergraduates. It's 8.5 percent for PLUS Loans – loans awarded to graduate students or parents to pay for their kids' education.
The good news is that any student taking out new, subsidized Stafford loans will have progressively lower interest rates now and in the future, thanks to the College Cost Reduction and Access Act of 2007. Subsidized loans are the ones where the government pays the interest on the loans while the student is in school.
Fact #4: Your employer can help eliminate your student loans
A little-known way to get rid of college debt is to have your boss pay it off. Many employers will do so if you sign an employment incentive contract. This means that as a "bonus" or "perk" to you, your job pays your student loans. In turn, you agree to be a loyal employee and remain with the company for a given time period, say at least two to three years.
So the next time you're up for a raise or performance appraisal, raise this subject with your boss. If you follow this advice, you may not have to pay your student loans at all – your employer will!
Fact #5: The federal government will pay up to $60,000 of your college debt
The government's Federal Student Loan Repayment Program can be a huge windfall to anyone with federal student loans. Administered by the Office of Personnel Management, this program allows any federal agency that you work for to pay off up to $10,000 annually of your student loans, up to a maximum of $60,000.
What's the catch? You simply have to agree to be employed by a federal government agency for a set period of time, usually at least one or two years.
For detailed advice about managing student loan debt, pick up a copy of my book 'Zero Debt for College Grads: From Student Loans to Financial Freedom.'
Follow me on Twitter for more financial tips. Also, share with other readers your experiences with college debt. Did you take out student loans to pay for school? And how difficult (or easy) has it been to pay off those loans?
Lynnette Khalfani-Cox, an award-winning financial news journalist and former Wall Street Journal reporter for CNBC, has been featured in the Washington Post, USA Today, and the New York Times, as well as magazines ranging from Essence and Redbook to Black Enterprise and Smart Money. Check out her New York Times best seller 'Zero Debt: The Ultimate Guide to Financial Freedom.'
Comments: (1)
Add a comment
By: White on 8/20/2010 5:12PM
Good points, but you forgot one that many students overlook: don't borrow money in the first place.
As a college financial aid officer, I am often dismayed at how thoughtlessly students sign on to a lifetime of debt without really thinking about other ways they could finance their education. Could you choose a less expensive college? Go part time and pay as you go? Postpone college for a year and save some money? Exam out of some courses so you won't have to pay as much? Live at home? Get a part time job? Choose a career with a company that provides training instead of going to college? Raise some funds with a small business of your own? Spend more time hunting down scholarship opportunities? These options may not be as easy as signing onto a loan, and it might mean that your college years won't be as much fun, but going bankrupt before you are 30 isn't easy or fun, either.
Because colleges only do financial aid one year at a time, most students never stop to think how much the total cost of their education will be, or whether the occupation they are studying for can be expected to provide enough income pay off those student loans. Students tend to decide on where they want to go first, and then set out to see how they can finance it. It ought to be the other way around--they should figure out what they can reasonably afford to pay, and then pick a college that fits the budget.
Frequently students don't realize that they don't have to take all of the loans that are offered to them. Many colleges automatically "package" students with the entire amount of loans for which they are eligible, whether or not they are needed. If the amount is more than is needed to pay the institution's charges, they don't refund the money to the lender--they send a check to the student. Students frequently don't realize that this check is a LOAN, not free money. So, they go out and spend it and wind up paying 10 years of interest on a loan they didn't need in the first place. This is particularly true of community colleges whose tuition is often lower than the federal limits for student loans.
I always counsel students to do 3 things before they sign onto loans:
1. Find out what the TOTAL cost of your education is going to be, and exactly how much money you need. Do everything you can to keep within your budget, and only consider borrowing after all other avenues of funding are exhausted.
2. Don't borrow more than you have to, and never borrow more than you can pay back with 10% of your expected salary. If you need to borrow more than that, you can't afford that college.
3. READ the fine print before you sign. I have never yet seen a student who actually read the terms on their Master Promissory Note. If they did, they might not be so quick to sign it!
Reply to this Comment | Report This