What Is Financial Aid When We Talk About College Loans?

By: Donald Saunders

Over the past 25 years the cost of education has increased greatly. Tuition fee increases of more than 6% per year are commonplace today. Just as one example, in 1973 the price of registration at UCLA (University of California, Los Angeles) was just over $200 per quarter while today it is more than $2,000 per quarter.

This tenfold increase is not at all unusual and many things now cost ten times more than they did 25 years ago. Salaries, on the other hand have increased approximately three times in this same period from about $15,000 - $30,000 per year to approximately $39,000 - $42,000 per year. These figures vary according to age, gender and more although as a rough guide a threefold increase is just about right.

But it is not all bad news. There are far more forms of financial help available today to students and parents than ever before. Financial assistance, as its name suggests, is money that students and their parents receive from scholarships, loans and grants granted by Federal and private lenders to aid students in paying for their education.

Previously, students were dependent almost entirely on Stafford loans and Pell grants to finance the cost of their education and living expenses. Nowadays Pell grants are still issued although they're need based and represent a small proportion of college costs today. Stafford loans are also need based but can range from 25% to 40% of the average cost of college nowadays. Another form of aid is Perkins loans which are similar to Stafford loans but which are given only to particularly low income families.

Luckily, PLUS loans (Parent Loans for Undergraduate Students) are also available nowadays and these were not around 25 years ago. These are loans provided for parents and not students to assist parents to pay for their child's education. Interest rates for PLUS loans are reasonable and there are certain restrictions and fees charged but they often form part of the student's overall package of funding.

One quick note on the subject of fees. Most loans are for a specified sum such as $6,000 per year to be disbursed in several payments (often once per semester). But it is common for fees of up to 4% to be taken from that amount before any funds are disbursed. This 4% fee on a $6,000 equals $240 which you will never see but which you have to repay. Whenever you are searching for a loan make sure that you do your homework and try to find a low or no-fee loan.

Though Federal loan programs like the subsidized Stafford loan program charge low fees and the government pays the interest, they are not the only form of financial assistance today and are not necessarily the best option.

Meeting the cost of a college education today is a complex operation and the majority of students will need to assemble a funding package which includes scholarships, grants, Federal loans and private borrowing.

Happily, there are now far more funding options available than we have seen for a long time and competition in the open market between private financial institutions in particular means that you can find funds at a price which is not going to put you into lifelong debt.

It is also fortunate that you live in an age where getting hold of the information which you need to make good decisions about the options which are open to you is also fairly simple.

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