Student Loans

Student loans are the largest source of funding available to help students pay college costs. However, it is important for you to realize that a student loan is a serious financial commitment. Failure to repay a student loan can have a significant impact upon your credit history and could impede your ability to purchase a car or house. Also, some employers check the credit reports of potential employees. Except in extreme cases of hardship, student loans are rarely eliminated, even through bankruptcy proceedings.

Before you take out a loan, do some research and make certain you are getting the best possible interest rate. Talk to your school financial aid office about the various options that are available to you.

College Finance 101

There are a variety of financial aid options, including:

  • Scholarships (awarded on merit and do not have to be repaid).
  • Grants (awarded based on financial need and do not have to be repaid).
  • Loans (these have to be paid back).
  • Work study (school employment).

If you are looking for grants that do not have to be repaid, be alert for scam offers. You might encounter classified ads offering free government grants. More often than not, that ad is just an opportunity to lose money. Remember, if you are asked to pay money to claim a “free” government grant or scholarship it isn’t really free and is more than likely a scam. Legitimate government agencies do not require you to pay a processing fee for a grant that you have been awarded.

Similarly, beware of scholarship scams. Common scams guarantee a scholarship – legitimate companies never guarantee or promise a scholarship. You may want to consider using numerous search engines on the web to find lists of scholarships on your own.

Interest Rates

Some student loans are guaranteed or subsidized by the federal government and their interest rates are regulated. The substantial cost of college may lead some students to look to banks or other lenders to supplement what they receive through the traditional student loans, grants and work study assistance. Since these loans are not guaranteed or subsidized by the federal government, they may be a more costly alternative for borrowing. It is important that you do some research on loans.

Some colleges use a “preferred lender” list. Students may mistakenly think that those on the preferred lender list are offering the best rates. However, you will only know by comparing rates. Do not make assumptions about which has the better rates, find out for yourself. Recently, it has been discovered that some lenders have paid colleges a bonus or kickback for each student referred.

Bank interest rates are not regulated by the federal government or the state of New Mexico. The theory behind this “hands off” approach is that competition is the best regulator of rates. For this theory to actually work you need to shop around and compare what lenders have to offer. While this takes time and effort you could save a significant amount of money.