Student Loan Tips for Parents and Students
April 21, 2008 – 10:17 am by Nick
The subprime mortgage meltdown has affected the student loan market. Students now face an uncertain student loan market. This spring, many families will have to make crucial decisions, before the Bush administration and Congress can act on the problem. The following is a list of tips for parents and students to weather the credit crisis without borrowing “bad” loans.
1)Borrow from the federal government directly: Parents and students should first seek loans issued directly by the federal government. If unable to obtain a loan from the fed, they can take out a loan from a private company or nonprofit that provide federally backed loans. Go to the Federal Student Aid website for more information. Here is a list of federal loans available to student and parents:
2)Fewer lender choices are available: The recent credit crisis has forced many lenders out of the market. The number of choices have diminished incredibly, and the student loan market is being restructured. It will be harder for students with credit card debt to receive private loans.
3)Financial Aid offered by Colleges: College financial aid offices can guide you towards the lenders that are still loaning funds to students. Many colleges also take part in a direct lending program, which should be your first choice (CollegeFinder website offers financial aid information for all US universities and colleges). Apply for financial aid promptly and by accurately portraying your financial situation.
4)Compare the offers: The College Board features a helpful calculator that allows you to compare the aid packages offered by each college. Family contribution is the most important number. We prefer schools offering higher grants and scholarships, even though they require higher family contributions. You should compare the packages, and find the one that fits the best with your financial situation.
5)Negotiate a better offer: If the financial aid a college offers you is too low, you can negotiate the offer. Many colleges are flexible because they are no longer able to collude. Colleges cannot withdraw their admission offer. You have the most leverage if you negotiate before you accept the admission and promptly. You should list all the events impacting your economic situation (expenses, working hours, family finances, family, expenses,…) that have changed since your initial application. The good way to receive more aid is to present a better offer from another respected college (not an easy safety school). Determine the amount you need. When you have amassed all this info, phone the college’s financial aid office, and present your case. Kindness and sincerity will go a long way.
6)Retirement Funds: Parents should not raid their retirement accounts to put their children through college. Parents will be unable to amass sufficient funds to retire, and their children are young enough to surmount any student loan debt. Although, parents can pursue federally backed loans that are easy to payback.
7)Parents borrowing on behalf of their child: Parents with bad credit will (most likely) be unable to obtain fixed-rate PLUS loans from the federal government. This loans cover the cost of their child’s attendance to pay for college.
8)The Stafford program offers up to $5,000 to individuals denied a Plus loan.
9)Extra loans from Private lenders: if you max out your federal loans, pursuing private loans might present you with several bad loans. Private lenders are tightening their belts. This leads to higher interest rates, less loans to schools with low graduation rates, requirement of better credit scores and little to no benefits. These loans could cost students their future financial solvency. Do the math and read the contracts thoroughly.
10)What will happen if all lenders leave the market? The federal government will buy back loans from lenders and possibly acting as a lender of last resort. Hopefully, the Bush administration and Congress can act swiftly. Parents and students should keep an eye on student loan market news.
