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Friday, July 18, 2008

Back to College: Financial Aid, Part 2


The Positive Side of Getting Financial Aid Through Your School:

  • Convenience, you read the info. they give you and sign the proper paper work. They do the rest.
  • Easy to get a loan regardless of credit history, or lack their of.
  • You are guaranteed that you don't have to pay it back until you've been out of school for 6 months.
  • When the time comes to pay back, you have options for postponing payments
Negative Side of Getting Financial Aid Through Your School

  • The school processes your loan & disburses it to you, and for doing that they take a small portion of your loan money.
  • Because they process your loan for you, they also control when and by what means you get your money. Years ago you would get a check within the first couple of weeks of classes(even on the first day of class in some cases). But as schools are adopting the corporate model, it is becoming a common practice to issue debit cards instead. I have nothing against debit cards, considering the fact that my husband and I have one with our 3 bank accounts. But I believe that when you take out a loan you should have the option of getting that loan in cash. Then there's also the issue of the school having your money in the bank of their choice (till you use the debit card), and of course, the debit card gives them the opportunity to monitor your purchases.
  • Also, if the school still gives you the option of having a check issued to you, it often comes from an out of state bank, which means that when you take it to your bank, they may put a hold on it, which means you won't be able to use the money for 2-4 weeks.
  • These loans often have a very high interest rate, and though the payment plans can be quite flexible, the interest adds up, and over time you will be in debt for a lot more than you had expected.
  • A lot of loan companies, like Sallie Mae, actually pay the school for the opportunity to process your loan. In turn, the loan company (subsidized by the govt) and charging you a huge interest rate, stands to profit from every loan they oversee.
My Advice:

  • Shop around for a private loan from the institution of your choice. This is the only way you can truly get a competive interest rate and have total control over the kind of loan you take out, and ultimate control over the money you borrow. (& you don't have to give you're school a cut)

My Experience:

  • The first two years I was in college, I got a government subsidized loan through Sallie Mae, which I'm currently paying. I won't go into all the details, but the following is a very revealing estimate of my payment history: My original loan balance was around $5250. And over the past year, I've been making payments, totalling nearly $1200, and yet my current loan balance is still over $5000. hmmm, the numbers don't add up to well, do they? But that's just an example of the high interest rates that can get tacked up to these government loans. Actually I've now talked it over with my husband, and I've decided in a couple of months when my husband and I start our new jobs, I'm going to begin making "large" payments on this loan until it is paid off.
  • Also, I had considered postponing my payments (after I had already begun paying) And I found out that I would have to pay a fee of $50 per loan in order to "process my request for forbearance," and each school year is counted as a separate loan. Since I was at my first school for 2 full years and then 1 extra semester, that means I have 3 loans, so I would have to pay them $150 before they would let me stop making payments, but since my monthly payment is lower than $150, why would I want to pay this amount?
  • As for my other loan, it is a William D. Ford Federal Direct Loan Program. I will not begin making payments on it till sometime next year, and I believe the terms of this loan are far better than SM...but again, by getting the loan through my school, I had no real choice in the matter (and didn't have full control of the money) but when I start making the payments on this loan, I'll let you know how it goes from there.
More Articles & Info on Sallie Mae:

News America

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