Bling Bling Blues - Paying for College

Federal Loans
Federal Perkins loans are available to students with exceptional financial need. They are available directly through a college or university. The Perkins loan has a fixed rate of interest, and students can borrow up to $4000 per year. No interest is charged until repayment begins, and students can defer repayment for up to nine months after leaving school. Federal Stafford loans are offered as subsidized loans (the government pays the interest while you are in school and for 6 months after you graduate, or unsubsidized loans (you pay the interest, but you can defer payment until graduation). For the 2005-2006 school year, the interest rate on Stafford loans is 4.70% while you are in school, and 5.30% once you begin repayment.

PLUS loans are available for parents with good credit to pay for undergraduate costs for a dependent student. These loans are not based on financial need. The interest rate for PLUS loan in the 2005-2006 school year is 6.1%.

The National Center for Education Statistics reports that 50% of college graduates had student loan debt, with an average debt of $10,000. At 5.30% interest (the current rate for Federal Stafford loans), students can expect to pay $2904 in interest if they take ten years to pay off their $10,000 loan. In addition, a student planning to go to law school can count on an extra $40,000-$80,000 in debt upon graduation; a medical student graduates with about $100,000 in student loans. In many cases, these students pay back as much interest as principle on their loans, and will be facing retirement before their loans are paid in full. To estimate your own student loan payments, enter your information in this calculator.

What can I do? How can I pay my student loans??
In nearly all cases, student loans CANNOT be discharged in bankruptcy. However, there are certain cases in which student loans can be forgiven or discharged. In the event of the student’s complete and permanent disability or death, federal student loans will be completely discharged. If you are a full-time teacher for five consecutive years in a designated low-income school, you can discharge $5000 of your federal student loans. (For more information, click here). Full-time employment in many vocations (such as teaching and nursing) will qualify the borrower for Perkins loan forgiveness (a full chart is available here). AmeriCorps offers an education award of $4725 after a year of service, which can be used to pay off student loans. The Peace Corps offers up to a 70% reduction of student loans for returning volunteers. Lawyers who choose to work in the public interest may be eligible for a loan repayment assistance program. A similar program exists for nurses. Medical students should consider the National Health Service Corps, which assists with student loan repayment and provides a salary to those who provide medical care in underserved areas.

Ultimately, you will probably have to pay a large amount of your student loans on your own. There are four payment plans available for student loans. The standard repayment plan offers the best interest rates, and allows you to pay your loans off in ten years. This is the fastest way to pay off your loans, but requires a large monthly payment. The graduated payment plan starts off with lower payments, but gradually increases the monthly payment for ten to thirty years. The income-based payment plan fluctuates based on your salary for up to fifteen years. This is ideal for those in a commission-based or seasonal business. The long-term payment plan allows you to pay the lowest possible monthly payment for up to thirty years. By the end of thirty years, you will have paid double the original amount of the loan!