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What to Know Before You Take Out a Student Loan

I am seeing many young clients with significant student loan debt, as well as parents seeking solutions for funding their children's college education.  It is very important to understand what loans you may qualify for, and also to develop a strategy of prioritizing the loans that are most beneficial to your unique situation. I am currently pursuing the Certified Student Loan Professional designation so that I can assist clients with these issues that are affecting so many clients today.  

Subsidized federal loans are a good choice for many borrowers since the interest does not accrue while the student is attending college.  If interest accrues from the time the loan is disbursed and is not paid during the time the student is in school, it is capitalized, or added to the principal of the loan.  This results in a higher loan balance and payment of interest on this amount over the life of the loan, racking up significant interest expense since most loans are paid over a ten year period.  Also, some loans offer lower interest rates if you can qualify for financial hardship, and these should be used before turning toward the unsubsidized loans.   The unsubsidized loans accrue interest while the student is completing their education, and this gets added to the principal balance, resulting in additional expense over the life of the loan. Finally, private loans can be used as a last resort, but these do not offer the income based repayment plans or forgiveness that the federal loans do, and these also can trigger default much more quickly than the direct federal loans.

Please contact me if you would like more information on these options.  It is so important to have a college funding strategy to avoid some of these mistakes that can be quite costly later.