Types of Student Loans in Covering Student Needs - Report Example

Introduction There are different types of student loans that include: the federal loans, parent plus loans and private loans. In the federal loans this type of loan that is available for one who qualifies and it is known as Perkins loan which is given for undergraduate and graduate students, it has a fixed 5% interest rates, there is minimum award of about $5,000 per undergraduate each year, there is a maximum award of about $7,000 per graduate each year. The federal loans must be repaid with interest; a student who applies for this kind of loan should have already applied for FAFSA. There are limits that are set for amounts that can be given to students and vary depending on grades and needs of a student which is determined by FAFSA. The first time students who have changed their lenders are required to complete entrance counseling and sign a note of master promissory before a loan is given and the lender should guarantee a student that a loan will be repaid. The federal loans do not need to be repaid until a student has graduated but a student should be able to determine the repayment details that are set for the loan. (Stephen, 1995) The emergency loans should be repaid at the end of the first semester where a student is supposed to follow the restrictions and requirements that are set so that they can apply the short-term loans. There are stipulations that are set for federal loans meaning that requirements have to be reached so that they can qualify for federal loans. The costs that are attached to federal loans are very high meaning that only the rich will be able to afford leading to losses been faced by financial associations. The interest rates during the last decades led to collapse of some of financial industries and need to have involvement of taxpayers so that they can bring about resolution to financial crisis but the problem still persisted affecting the operations of financial industries. Some of the stipulations include: set time that is required for one to enter a program like for the case of primary care program which is not later than four years should be followed which is before graduation, the student should agree on the time that is set for repayment of this loan in full, the loans are not eligible for consolidation under the federal consolidation loan which is under higher education act. If a person does not follow the set rules and requirements, then the balance that remain on loan will be recomputed immediately from the date of issuance at the year when interest that is supposed to be repaid. The recomputed balance should be repaid not later than four years from the time when the borrower has failed to follow the stipulations. There are applicable deferments that include: the full time active duty as a member of the uniformed service, there is full time volunteer under the department that a student is in study, there is need to pursue advanced professional training. (Stephen, 1995) There is need to have enrollment of full time participation in activities that are set for a particular department. Before leaving a college a student who intent to return as a full time student should engage in educational activities which are directly related to what he or she is studying. There is need for this student to participate in training program before the completion of training within one year. The benefits of the federal loans include there is low monthly payment which up to about 54%, the fix interest rate that one has to pay it about 6%, the defer payments are up to three years, a student can cut the interest rate by about 0.7% by consolidating during the grace period, there is reduced monthly bill paying paper work, there are flexible repayment plans, there is no pay penalty for early repayment and no credits check, no co signers needed and no fees that is required. This loan is therefore very important for students who want to learn without problems of financial failures. The parent plus loans are loans that are given to parents and they are under the federal family education loan program that is authorized by federal government so that they can be helped in paying fees for their students. The federal government backs the loans with guarantee from other agencies like California student aid commission. The parent plus loan can help the family realize the educational goals of a dependent student and requires a student to know repayment obligations. For a parent to qualify then, he or she must be a natural mother or father, a guardian should have rights from a court to use his or her own resources for support of a needy student, the spouse of a parent who has remarried should have income and resources which when combined should be able to repay a loan. Both a parent and a student should be a citizen in that country like US, be permanent resident or an eligible non citizen, the parent or student should not a default of student loan where he or she has obtained loans that exceeds the annual limit or he or she should not be liable for a grant of federal Perkins loan over payment and a parent should posses a social security number. The student in addition should be enrolled for at least a half time basis in a degree program at a college, vocational school or other programs that are approved by the US department of education, the student should have complied with US service requirements that are set for registration. (James, 1995) Be able to make satisfactory progress in education and have a high school diploma or having passed an approved, independently administered ability to benefit exam. The costs that are set for parent loan is that interest that is charged has to be repaid during the life of a loan together with insurance fees and the original fee at the time of disbursement. The interest rate can be adjusted within a time that is set. Before accepting the conditions that are set for the loan then one should know whether a school or a program is a good investment in that a parent has a right to be informed about school tuition fees and refund policies, academic trainings, financial aid programs and the success in finding jobs. A parent should know whether there are other options like scholarships, grants and work-study programs. He or she should know if there is an allowance of borrowing less and know whether a student will live economically. Know how to repay a loan meaning that a parent should determine if a loan is affordable and make an estimate of know many monthly payments will be required so that the set guidelines can be used in making the application. A parent should keep in touch with the lender and school so that in cases of problems then records that are set can be used to solve problems within the shortest time possible. A parent should avoid default by filing for a deferment, this is a case when one finds it hard to repay the loan due to problems like unemployment, temporary financial set backs or the guardian attending school. (Kathleen, 2003) For one to avoid loan default then he or she should report loan status to national credit reporting agencies, should make assignment to collection agencies where full payment is required, should know loss of eligibility for future student financial aid. One should know that are higher interest rates that are set for default loans, one should make a collection of costs, there should be court action and there should be attachment of property for loan repayment. The benefits of this loan include a fixed 8% interest rates, the cost of education if funded up minus other aid received and the full deferment options can be taken to those who qualify. This means that what is set for the students and guardians should be followed so that they can be able to get loan and make arrangements for its repayment. The private loans are loans that are offered by banks and other private sectors so that they can provide money to learners. The interest on private loans may be capitalized meaning that there is added to a loan principal and increase amount of money that are charged to the borrower. The approved and terms for private loans are based on credit history meaning that depending on the state that is set for one to qualify then he or she should make the right requirements that are required so that a loan can be given. If for example the rating is bad then one will require a cosigner so as to qualify. In the case of poor credit then interest rate may be very high on the loan. The fees and penalties for this loan are higher than those with the government backed, loans and the repayment terms may not be affordable. This has the indication that for one to decide to make use of private loans then it should be used as a last resort because it is very expensive to maintain and repay. The private loans make college more expensive this is because they set regulations that are high in regard to some students leading to elimination of such students attending colleges. (Evan, 2003) The problem with this loan is that is does not have fixed interest rates that are charged to parents and students and this has the indication that it is not possible for all students to afford a loan in times when interest rates is high. This private loans does not involve the federal government meaning that if a government is not involved in student assistance then certain challenges follow which include the sticker tuition prices should decline, the private market should have to respond to the phase out of federal assistance meaning that the respond will have to take several forms like additional private sector loans, additional private scholarship funds and the expansion of human capital contracts. The human capital contracts are not possible to be received by students, as they are costly and other times they are not available. The diversity of resources, objectives and types of governance among colleges and other educational institutions, lay a barrier that is not possible to make the right measurement of exact amount that will be required meaning that with changes in tuition fees then the federal government will not be able to assist all institutions. The problem with private loans is that they only allow a limited population to have access to the loans bearing in mind that loans are provided for all only if one will be able to repay. This will mean that the poor will not have access to this loan as the private sectors are very expensive and not in link with government. This is a clear indication that the rich will benefit at expense of poor in educational background. The grace period that is set by private loans is from immediately to a yearlong which is not a case with other types of loans. This grace period is not enough for all in a country as there are different classes of people. (Alex, 1999) This kind of loan has got benefits that include the interest rate that is carried by this loan is not fixed this is because one carries different points from financial institutions and other charges that have to be paid are also different. This means that the private lender will have flexibility to eliminate the added costs that result from other expenses that have to be incurred. There is attractive returns in that private lenders offers a loan at the same rate as the financial institutions meaning that one will not have to worry about loans where to get them as they are available. This loan also offers the tax savings in that a lender will be provided with a way for him or her to provide money to a borrower without payment of gift tax. The borrower in return will use loans to purchase a residence meaning that interest will be deducted as an itemized home interest expense. The private loans can be extended in circumstances when financial institutions will not be able to make loans meaning that they will be available to provide loans to people where the repayment will be made been under care of private sector. The loans are very much flexible as they can be sold by secondary market or be held and serviced by financial institution when regulations that are set been followed. The private loans owners may make changes to loans so that they can be able to accommodate changes that occur within that time in secondary market. If the private loans are structured, closed and serviced correctly then they can be used as a basis for establishment of credit. This can be through servicing in ensuring that the payment history that is kept is right and will not bring about losses to private sector. There is need to have improvement in financial changes so that students can receive financial aids these changes will be aid at ensuring that students will be able to loan without encountering problems of finance. This is done through the coordination of financial aid programs that will be aimed at assisting students in identifying the resources so that they can qualify for loans. The financial aid programs should make assessment of the student and family financial needs so that in giving loans they can be sure that they assist a student within the time that is required and repayment of loan can be achieved. In application of financial aid one should be ready to face challenges that occur this is because it is complicated and takes a lot of time. This has the indication that one should not be in a rush to apply any loan without knowing the set restrictions and requirements so that the dangers for loan default can be dealt with within the time when the borrower feels that this problem might come up. All the requirements that are set should be followed so that it becomes possible for a student to learn with loan and make repayment within the set time. The loans are very important because they assist needy students to learn without facing problems. This is because in the country agree are different classes of people meaning that the rich will be able to pay fees while the poor will find it hard. This has the indication that the loans should have restrictions so that they cover the poor who are in need of education. (Alice, 2004) Conclusion Student loans are very important for a country that has many poor students. But one should know which is the applicable loan because some loans like private loans are hard to follow set restrictions because the federal government in not involved. The federal government should not set high restrictions to the poor meaning that loans that are readily available should be set for poor families to have access to them for their students to learn. Reference: Alice, T. (2004): types of student loans in covering student needs. Nolo, 9th edition. Alex, J. (1999): money troubles and solutions to college students. University pres. Evan, J. (2003): private loans and federal loans. Privacy times. Kathleen, P. (2003): money troubles. Nolo, 6th edition. James, M. (1995): student loans. Debt free owl books. Stephen, K. (2000): different types of loans and their requirements. Nolo, 11th edition. Read More