Money Talk$ - student loans - Brief Article

Ebony, Sept, 2001

How To Borrow Money For College

IN the super-competitive chase for college scholarships, not everyone can get the free big bucks. Yet the lack of scholarships should not keep a bright, motivated Black child from attending college.

Loans have made higher education a realistic goal for many students who don't qualify for scholarships, who don't have enough money to cover the cost of education or whose parents make too much money to qualify for need-based funding. The loans, backed by the federal government, make college possible for a new generation of Black students.

"The federal government has been extremely aggressive in assisting young people to use these loans," says Jesse B. Brown, owner of Krystal Investment Management in Chicago and author of Investing in the Dream and Pay Yourself First: A Guide to Financial Success. "Young people have got to appreciate the federal government's role in this regard. Ten, 15, 20 years ago, these loans were not available, and parents had to foot the bill."

By taking the right steps, any student who has the desire to extend his or her education can have it financed through a host of student loans.

Beginning The Financial Aid Process

Students interested in attending college should become familiar with the Free Application for Federal Student Aid, or FAFSA. The application measures the student's and family's ability to pay for educational costs, and requires information about the income, taxes, assets, college choices and more. It can be picked up at high school guidance offices, college financial aid offices and on the Internet.

No matter how it is filed, the student will be mailed a student aid report, which spells out the information you gave to the federal government. The agency automatically sends it to the college choices the student lists in the report. The college, in turn, takes that information and awards financial aid packages based on thee estimated family contribution (EFC).

"We look at the EFC and the cost of educating that particular student for that semester," says Linda Knight, assistant director of financial aid at Florida A&M University in Tallahassee, Fla. "We make the award based on the availability of eligible funds. No matter what time frame you complete the applications, there are loans and you will receive them."

Loans accommodate students on all economic levels.

Need-Based Loans

* Perkins Loan: The university allocates this loan through monies distributed by the government.

* Subsidized Stafford Loan: The financial aid office has a list of available lenders that the student can examine. The private lenders are insured by a non-profit state or federal guarantor agency.

* Subsidized Direct Loan: The federal government directly lends students money for college, eliminating the private lenders in the middle. Some institutions use only the direct loan program.

For the Stafford and Direct Loans, the student completes an application, and the federal government pays the interest on the loan for as long as the student remains in school.

Outside Of Need Loans

* Unsubsidized Stafford/Direct Loans: In this case, the student is responsible for the interest on the loan while in school. The student can put off the payment, but the interest will capitalize along with the original amount borrowed.

* Parent Loan (PLUS): The federal government sponsors this loan for parents. Parents are required to go through a credit check.

* Private Loans: After all options have been exhausted, it may be necessary to take out a private loan to pay for college. The rates are generally higher than loans backed by the government. Students and parents may be subject to a credit check and are usually responsible for interest while the student attends school.

Managing Loans

Like the household budget, student loans need to be managed properly. There are annual borrowing limits for the Direct and Stafford loans, but they rise as the student continues his or her education. The first year maximum is $2,625 and the second year is $3,500. For each year of undergraduate study thereafter, the maximum is $5,500. The maximum on the PLUS loan is equal to the cost of education minus other aid received.

Each year, students must fill out the FAFSA and have their award decided by the college's financial aid office. The amounts borrowed may change, but the student doesn't have to fill out additional promissory notes.

Students should keep a folder with all relevant forms to determine how much was borrowed and the source of the money during the course of the college life.

Paying Back The Loan

Once a student graduates or withdraws from school, it is very important to attend the "exit interview." The financial aid officer will review all loans taken out over the years, the amount of payments expected and other rights and responsibilities as a borrower.

There are various repayment options after graduation or withdrawal. The standard repayment plan offers the same amount paid each month for 10 years. Others opt for the graduated repayment schedule, in which payments start out small and rise every two years.