(U-WIRE) OXFORD, Miss. – Autumn signifies the beginning of the school year – and the arrival of tuition bills. For some families, the season also brings the realization that payment of these bills is more difficult than expected.
However, some middle-income families with incomes high enough to preclude need-based aid, but who still don’t make enough to cover all college expenses, obtain reimbursement for those bills through federal education loans.
The two main programs available to families under provisions of the U.S. Department of Education are the Unsubsidized Federal Stafford Loan for students, and the Federal PLUS loan for parents. Families who have not already covered the expense of putting their child through higher education with need-based or merit-based aid may be eligible for these low-interest, federally guaranteed loans.
Between these two programs, families can cover any portion of their books, tuition, room and board, or air travel expenses not already covered by another form of aid. And some or all of the interest on these loans may be tax-deductible.
According to Don Fenstermaker, President and CEO of Phoenix-based NextStudent, which helps students find money for college primarily through federal and private education loans and scholarships, the area of college loans is probably the most confusing to families, from a fiscal standpoint.
Due to the lack of knowledge of loan programs provided through U.S. Department of Education, many families incorrectly allocate funds to pay for college education. Parents and their students use credit cards, some of which carry interest rates as high as 24 percent, refinance their homes and use private loans, whereas low-interest federally guaranteed loans might have saved them more money in the long run.
"Many parents fall short of the money needed to pay their student’s college expenses. Federal education loans may be tax-deductible and are a better alternative to credit cards, refinancing a home, or private loans," said Fenstermaker.
In light of the recent drop in interest rates on federally guaranteed loans, more and more families are taking out education loans to cover the cost of college tuition. On July 1, 2002, rates dipped to historical lows.
The Federal PLUS loan allows a parent or legal guardian to borrow funds sufficient to cover the cost of education at his or her student’s school, less any other aid for which the student is eligible. The interest rate on a PLUS Loan is set annually on July 1 by the Department of Education, based on the 91-day Treasury Bill plus 3.1 percent. It is capped at 9.0 percent. Currently, PLUS Loan rates begin at 4.86 percent.
Federal Stafford Loans are need-based, federally guaranteed loans available to help cover the cost of education. The Stafford Loan carries a variable rate of interest capped at 9.0 percent, based on the 91-day Treasury Bill plus 1.7 percent during in-school, grace and deferment periods. During the repayment period, the rate is based on the 91-day Treasury Bill plus 3.1 percent. Rates on Federal Stafford Loans currently begin at 4.06 percent.
These loans are available directly from the Department of Education or through education-loan brokerages such as Fenstermaker’s company, which offer education finance counseling, incentives and customer service to those seeking education funding.
Thigpen said claims can be settled in just a few days.
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