Bigger Tuition Bills = More Student Loans in 2011

As tuition rates continue to climb, fewer colleges are meeting the needs of their students, relying upon those students to take out more student loans. According to one report, fewer than 70 4-year colleges in the nation are committing to providing full aid packages for their students. Full aid packages include grants, scholarships, and work-study programs that may or may not have federal backing. As these money sources dry up, you may wonder, “What does this mean for the average student?”

What the Average Student Should Expect Next Year Unless you happen to be attending one of the very few colleges who provide full aid packages to their students, you will need to take out a student loan. In fact, as competition for scholarship and grant money becomes more fierce, some colleges are asking some students to take on more personal responsibility for coming up with funding–meaning you will be asked to borrow more, or contribute more by working and paying cash–than you would have just a few years ago.

The Basics of Student Loan Borrowing: Private vs. Federal Lenders Since it’s highly likely that you will need to take out a college loan, it’s a good idea to familiarize yourself with the two different types available. The first kind is a federal student loan, which is funding backed by the federal government. This type of loan has an extensive application process, called the FAFSA, which will determine your eligibility for loans. Your aid package, including federal student loans, will be calculated using the FAFSA scoring system. Private loans are college loans granted by private banks. The application process is much simpler than the FAFSA, and it takes much less time to become approved. These are an excellent choice if you are running out of time and need a loan to pay tuition quickly, as they can be completed and reviewed in less than half the time of a FAFSA.

Repayment Terms and Conditions Whether you borrow college money from a private or federal lender, the repayment terms and conditions are the same. In fact, student loans are much more attractive than almost any other kind of loan available, as they generally carry a much lower rate of interest–usually 2 percentage points below the conventional loan rate. They also have a flexible repayment schedule. While you are a full-time student, your loan payments are “deferred,” meaning you don’t have to begin paying them back. In addition, there is a grace period ranging from 6-12 months after graduation before you need to begin repaying your loan. Some lenders will ask you to begin repayments if you drop to half-time status, so be sure to check before dropping classes.

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