Student Loans: A Lesson in

Borrowing

By: Sydney Smith

Click on the link below and please will out the

test to the best of your ability

Pre-Test

A student loan is designed to help students

pay for university tuition, books, and living expense .

It may differ from other types of loans in that the interest rate may be substantially lower and the repayment schedule may be deferred while the student is still in education.

It also differs in many countries in the strict laws regulating renegotiating and bankruptcy

What is a student loan?

The Problem: There is almost one trillion dollars in outstanding student loans in the US today; this is even more than credit card debt. The average student graduates with 26,000

dollars in student loans. This is in part a problem with tuition increasing at a steeper rate than inflation

The Problem

Many people also attribute the problem to how

simple it is to get a student loan. Many people get student loans without giving

much thought to the ramifications Additionally, due to the passage of the

Bankruptcy Reform Bill of 2005, even federal student loans are not discharged during bankruptcy.

The Problem

In the United States, there are two types of

student loans: federal loans sponsored by the federal government  and private student loans , which broadly includes state-affiliated  nonprofits and institutional loans provided by schools.

 Student loans may be offered as part of a total financial aid package that may also include grants, scholarships, and/or work study opportunities.

Types of Student Loans

The overwhelming majority of student loans

are Federal loans. Federal loans can be "subsidized" or "unsubsidized".

With subsidized loans interest does not start to accrue until the student graduates, with unsubsidized interest begins to accrue immediately.

With both the payments don’t begin until 6 months after the student finishes schooling

Subsided vs. Unsubsidized

An Income-Based Repayment plan is an alternative to

paying back student loans, which allow the borrower to pay back the loan based on the person’s income

However, income based repayment does not apply to private loans. IBR plans generally cap loan payments at 10% percent of the student borrower's income. Interest accrues and the balance continues to build.

However, after a certain number of years, the balance of the loan is forgiven. This period is 10 years if the student borrower works in the public sector and 25 years if the student works at a for-profit.

Income-Based Repayment

Start with the safest loans. Federal loans are

the safest place to start. Interest rates on federal loans don’t change

over time and aren’t affected by your credit rating

Federal loans also come with some guaranteed borrower protections in case you’re unemployed or have other financial problems after college.

Tip for Student Loans

Unsubsidized Stafford Loans are the next best

option, and they’re available to everyone, regardless of income.

Interest builds up while you’re in school, but you don’t have to start making payments until six months after you graduate, and you still get the federal borrower protections.

The interest rate for Unsubsidized Staffords is fixed at no more than 6.8%

Tips for Student Loans

Private student loans, sometimes called

“alternative” loans, are much riskier  They’re a lot like credit cards: even if they

start at what seem like low rates, those rates can shoot up at any time, and the interest costs can quickly surpass whatever you borrowed to begin with.

Also, they don’t have the borrower protections that come with federal loans.

Tips for Student Loans

Shop around. If your school recommends

borrowing from a certain lender or lenders, find out why. Schools can have many reasons for choosing a “preferred lender.”

Depending on what they are, you may be able to get a better deal by shopping around.

Get the full terms of what the preferred lender or lenders have to offer before you make any commitment.

Tips for Student Loans

Federal loans are available from lots of different

banks and lenders, and many offer discounts on fees or interest rates.

Private loans vary widely in costs, and they can be tricky to compare

Even a seemingly objective resource usually only includes lenders that pay to be listed. If you find a good rate on a private loan, keep talking to other lenders, and see if they will beat that rate.

Make sure you get the final deal in writing, and that you understand the limitations and restrictions

Tips for Student Loans

A good rule of thumb is that your total education debt for your entire college education should be less than your expected starting salary after you graduate. Ideally your student loan debt should be less than half your expected starting salary.

Rule of Thumb

Please take the test in the link below. You may

use your note sheet on the test.

Post Test

Discuss the following questions with those

sitting around you Do you think that it is worth it to go to a more

expensive college if you have to take out student loans?

Is there any value to going to schools out of state?

Is it worth the extra money to go to a private college?

Activity!!!!