Student loans paper For TOP_A

final_student_loans x

6

RunningHead: STUDENT LOAN PAPER

Name:

Title:

Course:

Date of Submission:

Facilitator:

Introduction

Student loans in America are usually a last result for someone who wants to join a University/college and has exhausted all other avenues they could use to fund their higher education.

Student loans have helped millions of America gain the crucial skills needed for the job market but at a price. Interest rates although not much accumulate with time and have crippled most graduates well into their working lives and has seen most default because of being overwhelmed. This has eventually led to bad credit ratings for these people who are usually just starting out in life.

Body

A student loan is just like any other type of loan. The only difference though is that for the student loan, repayment of the loan is deferred until one has completed their education and the interest rate is lenient compared to other loans. The majority of American student loans are held by the federal government. Presently these federal student loans stand at $900 billion. There are two major types of student loans in the United States. These are Federal loans and Private loans. The federal ones are supported by the federal government while the private ones are associated with banks, credit unions, state affiliated non- profits and institutional loans provided by schools Federal loans fall into two categories subsidized and unsubsidized interest does not gather on the subsidized loans in the period the student is studying. The student loans can fall under a total financial aid package that includes grants, work/study opportunities, and scholarships. Federal students loans are the most preferred loans because of their low interest rates compared to those of private lenders. Student loans cannot be discharged in bankruptcy unless repaying these loans would result in “undue hard ship” to the one paying as at 2005. Private loans also fall under this clause. Students result to private loans once they have maxed out the loan amount they can get from the federal government (

www.alltuition.com

)

Once the student is done with their schooling they are expected to start repaying the loan plus interest once 6 to 12 months have lapsed. However, this facility is only available for subsidized loans and not unsubsidized ones and it is not dependent on the students attaining employment. Checking the terms and conditions for the loan facility is encouraged. Also, if the course load should drop by half repayment may be instigated. There are several repayment programs that are agreed upon. The Income Based Repayment (IBR) plan is one of the major ones. Under this plan, the amount paid back is pegged upon how much one makes. 10% of a borrower’s income is usually the standard amount set for repayment. If one works for the government the debt is forgiven after ten years and if for the private sector after 25 years of repayment. Debt forgiveness however is treated as taxable income but is over looked in case of insolvency or bankruptcy. This arrangement only applies to Federal student loans. Private loans do not follow this plan. Student loans are not dependent on income of a student, (expected or present) or their guardians for those still living at home. Qualifying for a student loan is assured for all Americans. The only requirements are that one be enrolled in a post-secondary institution, have never been convicted on any drug charges and have never defaulted on federal student loans. Amounts to be borrowed on federal loans is dependent upon the stage of education one is in for example an undergrad is allowed $ 5500 per annum while an under grad $7500. Private loan facilities like banks use different methods to ascertain money to be lent out. This includes factors such as guardian’s income level, credit ratings etc. Student loans interest rates are usually the prerogative of congress. Once a student gets the loan approved it is wired to their school directly and once every cost has been deducted by the school the student is given a choice to take the balance in form of cheque or cash or leave the money with the school to pay for part of the next semester. Students may extend repayment of loan through extended loan periods offered by the original lender, income sensitive repayment plans, federal loan consolidation and hardship deferments but with this extensions comes an increase in interest to be charged (staffordloan.com)

The Stafford loan is the most widely issued category of the three Federal student loan facilities. The other ones Plus and Perkins have strict qualifying criteria and high interest rates successively and this maybe the reason why most students end up getting the Stafford loan facility. Stafford loans are regulated by the federal rules; Stafford loans have low interest rates. President Obama on the 9th f August passed into law the Bipartisan student loan Certainty Act of 2013. This altered how student loan interest rates are determined. The current interest rates for the current 2013-2014 academic year for Stafford loans are 3.86% for undergraduates. This encompasses both subsidized and unsubsidized, and 5.41% for graduate loans (staffordloan.com)

In the fiscal year 2013, the amount of money borrowed by students was 106 billion through various federal loan programs. A student borrower is said to be in default if they go for a period of nine months consecutively without making attempt to service their student loans. The present default rate stands at 14.7 percent; 13.0 percent at public colleges, 8.2 percent at private colleges, and 21.8 percent at for-profit colleges (www.newamerica.net)

A credit score determines if you qualify for loans to buy houses, car, or credit cards. If you have a bad credit score automatically you do not qualify for these facilities. Student loans can mess up your credit scores if you are late or miss in repaying them. If you were to default this would destroy your credit rating. This is because it shows on your credit report for seven years .Student loan lending bodies have their tentacles in different places and you will find them attaching your loaned amounts on your wage, social security, disability checks so it is not advisable to default as it makes it harder for one to repay the loan (

www.alltuition.com ).

Reference

FinancialAidRetrievedfrom

money.howstuffworks.com/personal-finance/college-planning/financial-aid/student-loan2.htm

Interest Rates Retrieved from

http://www.staffordloan.com/stafford-loan-info/interest-rates.php

Analysis of Federal Loan Student Loan Retrieved from

http://febp.newamerica.net/background-analysis

How Student Loans Affect Credit Scores retrieved from

https://www.alltuition.com/library/f