Every year has seen tuition costs for college and university rise – the average cost of private intuitions of higher education reached as high as $40,000 in 2013 and 2014, and the cost will only go up as time goes on. The increase is estimated at around 3%-4% every year, outpacing wage growth and inflation – which means that many families don’t have a choice but to take out student loans in order to make up all of the costs.
If you’re a parent sending your child to an institution of higher learning and you’re looking at taking out student loans, it’s important for you to know the ins and the outs of the college loan system – you don’t want to be caught off guard, so you should know about student loans.
As A Co-Signer, You Are Always Responsible to Know About Student Loans
Some recent stories of parents co-signing for student loans have attracted some media attention – and one such story is that of the Mason family. The parents of Lisa Mason co-signed for nearly $100,000 of student loans to cover the cost of nursing school – and then tragedy struck. Lisa Mason died of liver failure at 27 years old, and the Mason parents were suddenly targets of lenders looking for repayment of the loans regardless of the tragedy. Because the Masons didn’t know about student loans, they suffered afterward.
While some of the lenders reduced their interest rates in light of the media attention the story found, a lot of people still don’t quite realize how dangerous co-signing can be. They’re liable, no matter what happens to the student – and even if the student remains in good health, the co-signer will be on the list when the time comes to pay.
Who Borrows the Money Is Important To Remember
When it comes to financial aid the calculations assume the burden of paying the loans is settled on two groups – the student and also the parents will make contributions to paying off the debt, and both are taken into account when it comes to the type of financial aid that can appear. Just like co-signing for private loans, it’s important to be accurate with who’s borrowing what for federal loans.
This flexibility can get you some better terms when it comes to interest rates and repayment. PLUS loans for parents can see fixed interest rates and delayed repayments when needed – but you need to ask yourself if you, as a parent, can repay the loans in worst-case scenarios. The more debt you take in your name, the more trouble you might have if things don’t play out well – just another thing that’s important to know about student loans.
Learn About Forgiveness Terms
The terms of forgiveness – if you have to pay back the loans – depends on what the type of loan is. Federal loans generally have a generous or kind set f forgiveness terms. Tragedies can see the loans forgiven so that you don’t have to pay back, if your child takes a public-service job (like teaching) it can forgive the loans over time, and if the school closes down for foreclosure it can result in you not having to pay the loans back.
Private loans, on the other hand, are much stricter. Lenders vary from one to the next on how they offer forgiveness terms if they do – and while they will take into mind how likely it is they’ll be paid back over a shorter or longer period of time (which can work out for you if you tell them, and get you on income-based repayment or a longer period to pay everything back), not many will give you outright forgiveness. Federal loans are better for you than private loans – but they can’t cover everything. If you have to take a private loan, make sure you know about student loans and every last detail of the loan contract and try to keep it in mind at all times when dealing with paying back your loans.
No Debt Is the Best Kind of Debt
It’s obvious – you’d rather have no loans to repay than some loans. It’s loan debt, and it can stack up from interest or generally hurt your credit score as time goes on. There’s a few ways to push toward this kind of goal, and one of them is to (while your child is still young – start as soon as you can) set up a college education fund near the start of the process and let it build up over time. Even a small amount every year can cut back the amount of tuition you will have to pay and make sure you have an easier time paying the loans back.
Just because you know about student loans it doesn’t mean you will have an easy time paying everything off – but being informed on exactly what each loan means can help you in the future of a tragedy or setback occurs and make sure you avoid the financial ruin that can from defaulted student loans.