© Copyright 2008 www.studentfinances.org.uk
Thursday, 04 September, 2008
Every year, nearly 1.7 million students enroll in college. Two-thirds of those students will graduate with some student loan debt, which averaged $19,237 in 2003-2004, the most recent year with data available. About 10 percent of parents also borrow money for their student's education, adding up to a cumulative parent loan debt of $16,317.
Adding to the traditional stress of borrowing thousands of dollars to pay for one's education, the student loan industry -- both federal and private loans -- is facing the same crunch that is affecting all U.S. financial markets. Borrowing guidelines are becoming more stringent, and rates on private loans are increasing (up to 13 percent annually, as compared to the federal Stafford Loan program's fixed rate of 6 percent.
To make the most of loan opportunities, here is what students and graduates need to know about student loans today:
Keep tabs on credit. Credit scores determine interest rates on private loans. Parents and students should check their credit rating - for free - once a year. Paying bills on time, building a steady employment history and being alert to possible identity theft will help support a good credit rating.
Borrow only what you need. Some students automatically borrow as much as they can qualify for. Instead, calculate your needs and borrow only that much. If the lender sends you a check for more than you need, ask for a corrected check. All loans must be repaid, and spending the money now on a vacation, furniture or clothing will only hurt in the future.
Do not charge. The average college student has thousands of dollars in credit card debt. With extremely high interest rates (typically 15-30 percent), accumulated credit card debt is difficult to pay off. While in school, use discipline to live within your means. It is also wise to use loan funds, rather than credit cards, to pay for big school-related expenses like textbooks. The interest will be lower, as well as tax-deductible.
Pay on time. Paying all bills -- including loans -- on time is the No. 1 way to save your credit rating and save money. It is more important than ever today, when a late payment on one account can send interest rate and payments skyrocketing on other accounts.
Use resources. Some employers and professions have perks that include student loan repayment. Once working, check into these programs, which can include monthly assistance, one-time payoffs and matching funds. If you qualify for one of these programs and do not take advantage of it, you are effectively turning down free money.
Take tax benefits. Most new graduates can deduct up to $2,500 per year in student loan interest payments. The deduction phases out for taxpayers with annual incomes between $55,000 and $70,000 ($115,000 to $145,000 for those filing joint returns). Ask a tax advisor to check your tax return to be sure you get all the education-related deductions and credits for which you qualify.
Pay more if possible. Additional payments are permitted on most student loans. The more you pay, the faster you will be free of the loan.
If you cannot pay. If you absolutely cannot make your loan payment, immediately call the lender. Lenders would rather work with you than risk a defaulted loan. Your credit rating will do better if you postpone payments for a while than if you default. Damage from defaulting could prevent you from buying a home or car or getting a job, apartment or insurance for years to come. If total debt is insurmountable, seek help from a reputable debt resolution advisor.
By making the right decisions on student loan borrowing, today's students can more quickly get on the road to financial freedom. Just as important as academic history, a good financial history paves the way for future success.
Source: http://www.newson6.com/