Student debt is now at an all-time high of 1 trillion dollars and rising. The fault this time is not the banks. Sadly, the blame lies with the democratic (Obama) incentives to students to join college. By making it so easy to get loans, thousands upon thousands of students have studied college and dropped out, and yet more are failing to pay back their loans. In addition, since it has become easier to get loans, colleges have jacked up their prices, with some colleges charging over 5x more than they did before Obama came into power.
Is this bad news for you?
No, it is not, at least, not at the moment. A student loan bubble has been created, but it will not affect students until 2025, when the number of defaulting students makes it more difficult for 2025 students to get loans. If you are looking to go to college, here are, in our opinion, the best student loans you have at your disposal in 2016
1. Federal Stafford Loans
These are subsidized and unsubsidized. It is one of the most common loans that students use to pay for college. A subsidized loan means that a student gets a loan and the interest on the loan is paid by the government while the student is in college. A subsidized loan is difficult to get, but an unsubsidized loan is very easy to get and almost anybody that says they are going to college is able to get one.
The Federal Stafford Loan (the subsidized version of it) is the best student loan you can get. It offers one of the largest loans (31k) and if you qualify for the subsidized version, the government pays your interest for your duration of college.
The people that issue the loans are aware that students cannot make payments and pay interest while they are in college, so they are deferred until the student leaves college and gets a job. The amount you receive for your loan will depend on if you are a freshman, sophomore, juniors or senior. The most that a student can receive throughout his or her time in college is $31,000.
2. Parent PLUS Loans
The Parent PLUS loan is a federal loan that is offered through colleges, and it is for students with good credit. The interest rate is often lower than it is for Federal Stafford loans. It is possible that the rate may be higher than it is with Federal Stafford loans, but it all depends on circumstance and your parent’s credit rating. The maximum you may receive from a Parent PLUS loan is the cost of your child’s attendance minus any other aid that the student has received.
3. Perkins Loans
These are mostly students that have an exceptional need for funding for college. It may be for students that are unable to get any other types of loan. The most a student may receive is $20,000 during his or her time in college. What an “Exceptional need for funding” really means is a little blurry, but the interest rate is very low, which is handy for students that do have an exceptional need.
4. Private Student Loans
There are many private lenders and banks that are willing to lend money to students. The interest rates vary quite substantially, and a student’s eligibility is mostly based on their parent’s ability to repay the loans. Parents are usually asked to be guarantors. These types of loans usually require some sort of payment while you are in college, and they are usually the last resort of students that simply cannot get loans anywhere else. Get one of these, and you are in real (adult) debt, though they usually come after your cosigner if you do not pay them in time. Still, your credit rating will be damaged significantly if you default or keep missing payments.
5. Mortgage Loans, Home Equity Loans, And 401K Loans
Most parents have their money tied up in their 401Ks or in their homes. That is why some parents pay for their children’s education with their 401Ks money or by getting a new mortgage for their homes. In an ideal world, the kids would pay their parents back for this, but it rarely happens. In fact, when most parents pay for their child’s education and ask for the money back, the kids start to disown and fall out with their parents. If you have instilled good moral values into your child, then he or she will not want to take the easy way and use your money.
It is not uncommon for parents to take out a new mortgage on their home in order to pay for college. After all, most parents have the majority of their net worth tied up in their homes and their 401k or other retirement plans. If a parent has not paid off their house yet, then they may re-mortgage their house and use the money to take out a loan they use to pay for their child’s education.
Some parents take a home equity loan that gives them cash up front. There are also HELOCS, which is where you get a home equity line of credit.
6. Borrowing From Family
This is one of the worst ways to finance your college education. Lending from family members is almost always a terrible idea. It puts a lot of stress on the family, and the person doing the lending is almost always made out to be the bad guy. The student that is doing the repaying is often resentful and bitter about it. If the lender is smart, then he or she will get a signed contract from the student. Sadly, for the lender, he or she is not allowed to charge interest, which means there is very little benefit for the lender.
7. Loans On Your Life Insurance Policy
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A parent, or even a student, may get a loan where the loan is secured against a life insurance policy. There are a great many terms and conditions that come with a loan of this variety, and the interest rates vary depending on an applicant’s credit rating and how much has been paid into the life insurance policy. One of the most important stipulations is that you continue to pay your life insurance premiums on time.