The cost of college education has been rising very fast and a big concern among many parents. Many graduates who have variable rate student loans are having difficulties in paying off the increased monthly payments and some are in default. Meanwhile, they are not allowed to refinance student loans or discharge these debts by filing for bankruptcy due to our insolvency laws. That is why starting from 1st of July 2006, both federal subsidized student loans and unsubsidized loans are converted to fixed rate payments to enable a transparent and predictable repayment schedule.
If you are looking for ways to pay for your child’s college education, the first option will always be federal subsidized student loans such as the Federal Stafford loan. If you have not previously used financial planning for married couples to save up an education fund for your child, you will need to consider student loans now. For a start, you do not need to pay off Stafford loans while you are still enrolled. If your school accepts your claim for financial hardship, there will be no interest levied on direct subsidized loans.
Although federal subsidized Stafford loans are almost the best choice for most families, there are some disadvantages you may not be aware of. We will discuss issues regarding how to get accepted for the Stafford loan, options for repayment or consolidation etc.
Subsidized Federal Student Loans And Unsubsidized Loans
Subsidized student loans are available if you can prove that you need financial aid for completing school. This involves completing the FAFSA application form and your school will review it and determine the amount of financing you are eligible for. To get accepted for subsidized student loans and enjoy interest free student loans, you need to be at least a part-time student.
As for direct unsubsidized loans, you do not need to prove any financial prerequisites. However, there will be interest accruing throughout your years of study, unless you choose to pay off the interest regularly. Note that it is highly recommended to start paying off your direct unsubsidized student loans when you have the spare cash in order to reduce your overall student loan debts.
FAFSA & Stafford Loan Eligibility
The first step to apply for a Stafford loan is submit the FAFSA application form online. FAFSA stands for the Free Application for Student Aid, which is a form used by the US Department of Education to verify whether you qualify for your financial aid.
To receive a Federal Stafford student loan, you need to meet the following eligibility conditions:
- Be a U.S citizen, a national or a legal non-citizen
- Registered with the United States Selective Service (18-25)
- Have a GED or high school diploma
- Agree to use the FAFSA financial aid solely for funding your education
- No existing student loan defaults
- Have not been found guilty of drug related charges while receiving financial aid
If you are interested in subsidized Stafford loans, there are two more requirements as follows:
- Your school must verify that you do need financial aid
- You must be enrolled as a part-time or full time student
Fixed Stafford Loan Rates
It has been announced that subsidized Stafford loans will be fixed rate student loans for the academic year 2010, 2011, 2012, 2013. The current Stafford loan fixed interest rate is 6.8%, which is considerably cheaper than other types of student loans available. You can use this repayment calculator to work how how fast you can pay off your Stafford loan. Avoid adding more consumer debts such as a bad credit car loan until you have managed to pay off your Stafford loan completely.
Stafford Loan Forgiveness And Consolidation
Note that you are not able to refinance student loan consolidation plans once you have started one, so make sure to choose properly. Many students in the past have found out the hard way that their Stafford loan consolidation is not helping them reduce their debt payments at all. It is advisable to choose a manageable payment schedule that will not stretch your personal finances and make sure you have a good 6 month cash buffer to continue paying your student debt obligations even if you are unemployed or lost your income due to medical conditions.
Currently, you are not able to discharge your Stafford student loan even if you file bankruptcy. However, you can try to get student loan forgiveness by choosing government careers or jobs in non-profit organizations such as being a member of the US armed forces, be a teacher in low income areas, medical workers, volunteer community work etc.