Good debt. The term sounds like an oxymoron. But according to a Connecticut Post article, student loans actually can be just that.
After graduation, many students have a seemingly daunting amount of money in loans that they must pay back. According to CNN Money, the 2003-2004 National Postsecondary Student Aid Study found that “at least two thirds of all undergraduates and graduate students will complete their education with some debt. In some instances, as much as $125,000.”
And although students are aware of the stiff bill that will be waiting for them after graduation, many don’t realize the ways in which student loans can actually be considered good debt.
The CNN article highlights four reasons from Mike O’Brien, CEO of www.financialaid.com, that student loans can be considered good debt.
First, student loans are federally guaranteed, which means that if students cannot pay back their loans for financial reasons, the government will. This in turn means that lenders aren’t overly concerned about getting their money back, and will be more likely to approve a student loan. Still, the article cautions, if do you not pay back the loans, it will end up on your credit report.
But assuming that loans are paid back on time and in full, student loans can be a good way to build credit, according to O’Brien.
Fairfield’s Web site breaks down the terminology and types of loans and financial aid that the school offers students.
When a student graduates, he or she has a certain amount of “indebtedness,” or the “aggregate dollar amount borrowed through any loan programs (federal, state, subsidized, unsubsidized, private, etc.) while the student was enrolled at an institution,” according to the Web site.
In addition to scholarships, grants and other awards, he or she may receive need-based self-help aid, which is “loans and jobs from institutional, state, federal, or other sources for which a student must demonstrate financial need to qualify.” There is also non-need based self-help aid, which is “loans and jobs from institutional, state, or other sources for which a student need not demonstrate financial need to qualify,” the article said.
To help students make it through four expensive years, Fairfield offers four types of loans: Stafford Loans, the Federal Plus Loan, the Federal Perkins Loan, or the Signature Loan.
Stafford Loans can either be subsidized (awarded on the basis of financial need) or unsubsidized (not awarded on the basis of financial need), and do not need to be repaid until six months after graduation. Interest for 2006 for Stafford Loans is a low 6.8 percent, another reason that student loans are good debt, according to the CNN Money article. Federal Plus Loans are loans specifically to parents, and a Federal Perkins Loan is a low-interest, 5 percent load for students with exceptional financial need.
Depending on what type of loan a student receives, most loans Fairfield offers require the student to start re-payment six months after the date of graduation.
Despite the complicated rules and terminology, loans can be a great way to pay for college and start to build credit.
Also, according to O’Brien, there is no interest on student loans.
“With student loans you only pay interest on the principle not the loan amount. It makes a big difference at the end of the year. You can even write off your student loans on your taxes. I don’t know about you but I need all the tax breaks I can get,” he said.
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