Higher education is a highly sought-after achievement for many cultures across the world. It carries a since of accomplishment and pride to those who embark on the path of career building and expansion.  It brings a mix of joy and apprehension to newly empty nesters and excitement mixed with anxiety to college freshman.  While imperative for furthering careers, higher education has its costs. It is important for students and parents to understand their options for funding college tuitions. While student loan debt is almost inevitable, just understanding basic terms can ease some of the woes of higher education costs.
Student loans are a form of monetary funding, that is borrowed by a student or parent, to cover college expenses, which requires repayment with interest. In the student loan arena, there are Federal student loans and Private student loans.                                                                                                                                                                                    
Federal Student Loans, also known as Stafford loans, are funded by the federal government. While federal student loans must be repaid, students are not required to begin paying off loans until one graduate, leaves school, or is enrolled in school for less than half time status. If a student is enrolled in school for a minimum of six to eight credit hours for a semester or trimester, they are considered half time status, with 9-11 credit hours they'll be 3/4 status and any amount of hours over 12 credit hours, they are considered as full time students.. To qualify for Federal student loans, no cosigner is needed. An award letter will be issued upon filling out the Free Application for Federal Student Aid (FAFSA), explaining how much of a student’s college expenses will be funded.  

There are two types of Stafford Student Loans, which are Subsidized and Unsubsidized loans. Subsidized (the better of the two) loans are available only to undergraduate students who need financial assistance. While enrolled in school for at least half time, the first six months after a student leaves school (referred to as a grace period), and during a period of deferment, The U.S. Department of Education pays interest on subsidized loans. 

Unsubsidized loans are available to both undergraduate and graduate students. Unlike subsidized loans, interest on unsubsidized loans is not paid by the U.S Department of Education during any periods. The student is responsible for paying all accrued interest, which will be added to the principal amount of the loan. It is recommended that students begin paying on student loan interest while enrolled in school to avoid the headaches that capitalized interest may cause.
There are limits applied to the disbursement of student loans. As of 2017, the annual limit for Subsidized Loans for freshmen are up to $5,500, up to $6,500 for sophomores and up to $7,500 for juniors and seniors enrolled in undergraduate courses. Limits for Unsubsidized loans are up to $20,500 per year, depending on grade level. Once limits have been reached for the unsubsidized loan disbursement, students will be given the option to accept a subsidized loan, to cover some of or the remaining tuition costs. The amount awarded for both subsidized and unsubsidized loans will be included in the student’s award letter.  If tuition costs are not covered at this point, student may either pay out of pocket, or apply for additional loans (Parent Plus loans or at the very last resort Private Loans).  *It’s important to keep in mind that the student loan limits are given for the entire year and may not be enough to cover the costs of four semesters of school (winter, spring, summer and fall).*                                                                                                                                                                                                                                                             
Parent Plus Loans are available for parents of dependent undergraduate students, to help pay for college expenses. Approval for Parent Plus Loans are subject to credit check. To apply for this type of loan, parents must fill out the FAFSA as well.

Here are some additional factors to consider before a parent applies for a Parent Plus Loan:
  • As of 2017, the interest rate for a Parent Plus Loan is 7.0%, as opposed to 4.45% on Subsidized and Unsubsidized student loans
  • Per the credit requirements for Parent Plus Loans, the borrower must not have a current past due history or more than $2,085 in collections or charged off debt within the past two years of applying for the loan. Also, borrower must not have any Bankruptcy, foreclosure, tax lien, repossession or wage garnishment history reporting to credit report within five years of applying for the loan.
  • Students or parents must not be in default on any other federal student loans
Private Student loans, which should be avoided at all costs, are non-federal loans which are funded through a lender such a bank, credit union or a school as well as some loan servicers, such as Navient. Typically, approval for private loans is based on credit check. Borrower may also be required to utilize a cosigner prior to approval. *It is imperative to know that cosigners are held responsible for repayment of loans, in the event that the student does not uphold his or her payment obligation* In comparison to Federal student loans, private loans are generally more expensive and potentially more detrimental to a borrower's financial success. Usually, due to accruing higher interest rates, students can expect to repay a substantially larger loan debt, than the initial loan amount. Here's a side by side comparison between Federal and Private student loans. 
  • Lower fixed interest rates that private student loans
  • Deferment and forbearance option
  • 6-month grace period after graduation
  • Several repayment options available
  • Fixed interest rates
  • No credit check needed for Subsidized or Unsubsidized loans
  • Approval based on credit check
  • Most lenders do not offer income-based repayment plans
  • Little to no assistance with defaulted loans
  • Interest rates tend to be higher than rates of Federal student loans
  • No deferment or forbearance options
  • Interest rates may change at any given time
DEFAULTED LOANS (Private vs Federal Loans)

At times, unforeseen situations may occur that affects a student’s ability to pay student loans on time monthly. After months of nonpayment, student loans are placed in default status. During this time, loans may be transferred to third party collection agencies, and nuisance phone calls may begin. While Federal Student loans are in default, borrowers are not eligible to enter any Income Based Repayment Plans or consolidations and are subject to programs like 9-month Student Loan Rehabilitation Plans. These plans require student loan borrowers to make 9 on time monthly payments to the collection agency. Payments are calculated based on the borrower’s income and outgoing expenses. Once the program is complete, the loans are transferred to a new loan servicer, in which the borrower will begin making standard monthly payments to. At this point, the loans are no longer in default and borrower can qualify for Income Based Repayment plans and Student Loan Consolidation.

Unfortunately, because private loans are not funded by the government, Private Loan Servicers may not offer repayment programs for students with loans in default. At the point that a student has loans in default, it is imperative that they contact their student loan servicer to discuss repayment options. This may prevent adverse activity from reporting on one’s credit report and possible wage or tax garnishment.   It is recommended that students only consider obtaining private loans out of necessity and after exploring all other grant, scholarship and federal loan options.

Unless someone is literally a "lifetime student”, there is no way to avoid repaying student loans. While it may be a hard pill to swallow for the recent college graduate searching for employment opportunities, there are options available to ease the strain of repayment for Federal Student Loans.
  • Income Driven Repayment Plans set student loan payments at amounts that are intended to be affordable for students, based on their income and family size.
  • Consolidation Loans allow students to combine multiple Federal Student Loans into one loan. This eliminates the inconvenience of making payments to multiple loan servicers each month.
  • Deferment Periods temporarily postpone payment on student loans for qualifying circumstances, i.e. while student is enrolled in at least half-time status school, unemployment, economic hardship, active duty military service, etc. During this period, interest does not accrue on subsidized loans.
  • Forbearance Periods, similar to deferments, suspend or reduce monthly payments toward student loans due to financial hardships. While principal payments are postponed, interest will continue to accrue during this period.

Grants are monetary gifts to students who are pursuing higher education. Unlike student loans, there are no requirements for grant repayment. To become eligible for a grant, students must fill out the Free Application for Federal Student Aid (FAFSA).  This will allow colleges and universities to determine how much financial aid a student qualifies for. After the FAFSA application is complete, students will receive an award letter stating the amount of funds that have been granted.

Scholarships are another form of free money given to students in all grade levels, however, eligibility is often based on merit pertaining to academic prowess, skills, hobbies, ethnicity, etc.  Like grants, there are no requirements for repayment for scholarships. Below are some free resources to help students find scholarships, additional grants and internships to help with college expenses. 

It is important to take note of deadlines for applying for scholarships and grants, so that a student doesn’t miss out on financial aid opportunities. 

Work study programs at participating schools, provide part-time jobs for students with financial need, allowing them to earn money to help pay for college expenses.  While all colleges and universities may not offer work study programs, it may be beneficial to ask one’s campus financial aid office if their school participates.
For more information regarding student loans, repayment options, filing out the FAFSA and more, please visit or contact a consultant today!