Paying for Education Bills: Getting Over the Trouble:
Every autumn symbolizes the beginning of new the session for schools, with
this, for some families, goes the anxiety of putting together
funds and paying for education bills. Fortunately the Federal
government is thoughtful and has made some provisions for some
types of financial aid to assist families.
Parents from middle income groups have higher incomes which rule out their chances of obtaining needs based financial aid. However their income may not be sufficient to take care of all college expenses so they apply for Federal education loans to have their education bills refunded.
There are two main monetary aid programs accessible for parents from the U.S. Department of Education. These are unsubsidized Federal Stafford loans and Federal PLUS loans. Parents who have not utilized any need based or merit based financial aid for their childrens higher education qualify for these Federal guarantee loans which go together with a moderately low rate of interest.
Both of these loan programs may be drawn on by parents to cover all types of expenses allied to education, things like books, living or travel expenses, providing no other financial aid has been utilized for that purpose. The huge advantage to using these loan programs is that tax deductions are accessible either for the complete amount or for a part of the interest you have paid on these loans.
College loans are a perplexing matter for most parents, especially so as there
is not much information to be had on the loan programs instigated
by the U.S. Department of Education. Ignorant of the specifications
made by the Department of Education, some parents utilize the
incorrect source of funds to disburse for higher education.
Sometimes credit cards are used which carry a high rate of interest
- nearly 22%, also parents apply for refinance on their homes
or use other expensive sources of finance without informing
themselves of programs offered by the Federal Government. This
method makes them loose much of their hard earned wealth, which
might easily have been saved, had they made use of a federally
guaranteed loan with a lower interest rate.
Federal loans are a more viable option if weighed against credit cards or refinance mortgages, for this reason, the rate of interest is typically low, application fees need to be paid and processing charges as well as tax deductions are to be had for interest paid over federally guaranteed loans.
Federal PLUS loans: parents can borrow sufficient funds to cover up the cost of education for their kids. In case some other aid is being used, then they may apply for a loan amount equal to the total cost of education less any aid already received. Interest rates applicable to these loans are usually changed by the Federal Department of Education on the first of July annually.
Of both Federal guaranty loan options available to parents the PLUS loan is the preferred and most easily accessible hence this option has been covered in detail in this article. PLUS stands for Parent Loans for Undergraduate Students, and contrasting to most loans available to students, parents can borrow more under the auspices of this program. Normally the sum that can be taken is enough to cover the entire cost of education. However, a grace period is not provided for and repayment commences immediately. With this loan program parents do not simply act as cosigner, rather the liability to repay the loan is entirely with the parents and not with the student.
Should the parents default on such a loan, the consequences would reflect on their credit report. Whilst the parents have the option of repaying the loan within one to four years, it is advisable to proceed with the four year loan in order that the payments remain within your means.
There has been a small amendment to legislation and now it is possible for a graduate student to apply for a PLUS loan in their own name. Rate of interest and terms and conditions remain the same for students.
This loan is not need based, and can be obtained by any students parents and over time it has emerged as one of the most intelligent ways to manage the financial burdens of education. The total sum that can be drawn on can encompass use for all types of educational costs such as tuition fees, books and supplies, laboratory expenses, board and lodging charges and even travel costs. The loan is federally insured and requires no security to be provided by parents. Of all the great benefits for parents, the two best ones are that interest paid on such loans entitles them to tax deductions and if the parents intend to repay this loan before the term is up, prepayment penalties are not applicable on these loans.
As at the first of July, 2006 changes were made to the PLUS loan program and they are now available on a fixed interest rate. The present prevailing rate of interest is approximately 8.5%; however price competition can acquire for you, added incentives and lower rates.
Federal Stafford loans: these are federally guaranteed loans also and can be used to cover the entire cost of education. They set off with a variable rate of interest and the interest charged throughout the grace period, the repayment period and the deferment period and will vary.
These loans are both available directly from the Department of Education or through an educational loan broker. It is advisable that you proceed directly with the department as a broker will mean an additional cost factor.
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