Student Loans Explained

Over the past four decades the cost of academic education has risen dramatically and the average tuition increase in average was more than 6% per year. But there is good news as well. More types of financial aid are available today to students and parents than there ever has been before. Financial aid includes in general scholarships, private loans and Federal loans - all aimed to aid students in paying for education.

In the past, students could depend on Federal based loans such as Pell Grants and Stafford Loans to finance education costs and most living expenses. This has changes. These days, Pell Grants are given on need-basis and so they cover only a small percentage of the education cost. Similarly, Stafford loans are also need-based and can range from 25%-40% of the average cost of financing school. The Federally financed Perkins Loans are similar in scope but reserved for the lowest income families.

Luckily, the newer form of PLUS Student Loans are now available. These more recent loans are given to parents, not directly students, and they help paying for their children's education. The PLUS loans complete the package of available student loans.

Although the aforementioned Federal loans, like the subsidized PLUS loans, require no credit check and offer low interest rates and fees, they are not the sole source of financial aid to students Private loans and other types of scholarships are also available and the prospect student should complete thorough research before choosing the financial aid package.

Most students will build a package of financial aid consisting of grants, scholarships (when relevant), Federal loans and in most cases private loans. Interest rates range from five percent for Perkins loans to the higher and more common seven percent and up.

Do not forget: student loans need to be paid back… It is a common cliché that the most effective strategy for debt management is to remain debt free. But being a student is not cheap and in order to pay for your education, you will probably need student loans – and they need to be repaid. Beware, in some cases student loans lead people to be buried deep in debt after failing to repay their debt.

It is highly recommended to plan for successful repayment and start with that before you even take your first loan. In other words, student loans are a service that is subject for repayment.  This doesn't change the fact that many borrowers fall to the trap of walking away from student loan debt. Some students ignore and when loans remain delinquent for 270 days, the loans become "default". This mean trouble – stay away if possible.

When such troubles are foreseen on the horizon, you should consider consolidating your student loans. Student loan consolidation is defined as the process of combining multiple loans into one loan, aiming to decrease monthly payments and extending the repayment period. This is serious project with advantages and pitfalls, so again – do some research before jumping into the water.

Most important – you're in school to learn, not to work. You will have enough time throughout your life to work and payback… so – enjoy it!

For more information about how to choose and manage the best student loans, please visit the Student Loans Maven website.