Why aren’t students taking loans from banks like they do with FAFSA and financial aid provided by colleges? Is it recommended to take major bank loans to pay for student debt? Or is FAFSA/Government loans the only way?
The current maximum undergrad direct loan amount is $27,000 total for four years.
In my opinion, this loan amount is the maximum students should be taking out for undergrad school.
How much do,you think you should be borrowing from banks to find your college costs?
For students, the loans through the schools (FAFSA is the application) are almost automatic, don’t require a co-signer, and usually have a lower interest rate and better terms for repayment. The negative is that there is a limit on the amount you can borrow ($5500/$6500/$7500) per year, and an overall limit.
If you can find a bank that offers a better deal, go for it.
Also negative: you have to pay them back. Too much is too much.
OP said his parents can pay 10-15k/year. That’s one big gap for anything but comm college, without the stats for a generous need-based college or for merit.
How do people get in 150k debt then. That always confused me if the loan amount is so low?
Some families are willing to take out large parent Plus or private loans, or co-sign loans with their kids. That is how they get in so much debt.
Also, in the past the student loan limits were different. Some of the people you read about who have a lot of student debt took that debt on a long time ago, and haven’t been able to pay it off. I have family members in that situation.
Sometimes that debt is grad school debt on top of undergrad, too.
Right @intparent
Some folks have debt from medical school, dental school, vet school, law school…where the means of payment is loans loans loans…and more loans in most cases.
How do people end up in that much debt if a student can only borrow $27,000 over the course of 4 years?
- Parents can also take federal loans up to the total cost of attendance
- Students who can find qualified co-signers can take out bank loans for much larger amounts
- Graduate school loans do not have the caps on them that undergraduate loans do
If you hear stories about undergrads with 6 figures in debt, it’s usually a combination of debt in their name and debt their parents took on but might be unable to pay off.
And not wise. Anyone can look up repayment terms and a calculator for the amounts due, every month, for ten or more years.
Also, there were Perkins loans until a few years ago which could have added $2-5k per year. Some schools and states have loan programs.
I know a kid who is over $40k in just undergrad loans. She did the $27k in direct loans, another $4-8k as a plus loan when her parent didn’t qualify for a Plus loan, some loans from the school. It happens quickly. That doesn’t include the Plus loans the parent did take, the 401k loan, and the 401k cash out. $$$
the short answer to your question, as mentioned above, is that loans have to be paid back. those who take out mega loans are often the ones interviewed on the news about how unfair the system is because they were “forced” to take on this debt to get an education. While in fact they chose that route in order to go to their dream school.
And don’t forget, the majority of those loans are not subsidized. So even though you don’t have to make payments while you’re still a student, the total amount of the loan is growing as interest accrues.
The student got an additional $4000 per year in Direct Loans if the parent didn’t qualify for the Plus…not a Plus.
But yes…this can add up.
So, what you all are saying…people take multiple loans out from multiple bank loaners? So if the maximum amount to take out per year is $27,000 with let’s say…a 45-75% interest rate. How do people who go to schools pay for room and board. Also, people who go to just regular colleges with $30,000 dollars tuition do they do the same method with multiple loans from different loaners and family co-signs?
45% to 75% interest rate? What are you talking about?? I can’t think of ANY loan anywhere with that %age interest rate.
That $27,000 in Direct Loans is NOT over year…it is the total for all four years…
Freshman $5500
Sophomore $6500
Junior. $7500
Senior $7500.
Not $27,000 per year. $27,000 TOTAL for all four years.
Here is what we are saying.
Some students take the Direct Loan…and then in addition to that, they have additional loans each year…either Parent Plus, or co-signed private loans with their parents…or private loans.
But here is the even smarter thing. Find a school that fits your budget without taking loans in addition to the Direct Loan…it’s $5500 your freshman year.
Find out…
- How much can your parents contribute per year.
- Is there any savings for your college costs...keep in mind...most students do NOT have college savings.
- Get a job...and save some of your own money.
- Get awesome grades and SAT or ACT scores so you are positioned as well as possible for merit aid.
The students with huge loans will also have huge loan repayment when they graduate or otherwise leave college.
Where do you want to go to college?
@jeeperscreepers: rates of 45% and above are illegal. Even 6-7% is considered high.
Please go through the online videos on foolproofme.org, especially the ones about student loans, credit cards, establishing a credit rating, etc. It’s actually fun.
Most people who go to college choose a college that provides them with sufficient scholarships to attend.
The #1 source of scholarships is the colleges themselves. To have an idea whether the college will be affordable, you run the Net Price Calculator (type the name of the college and Net Price Calculator, you’ll have the page and you can know exactly how much the college will cost for your unique situation.) You can also look at the “scholarships” page. You have to do it college by college and it takes time, so you have to budget that time.
Often, scholarships are related to test scores, so that “prepping” for the test, using Khan Academy, prep books, old practice tests (lots of them on the internet), and taking the tests several times can yield lots of money.
The #2 source is Pell Grants, perhaps the federal “Stafford” loans. Then the #3 source is your State. Bottom last is private scholarships (those are small but, cobbled together, can help buying books).
When you hear about college debt, you hear about the foolish few not the reasonable many, for the same reason you’d hear “man bites dog” rather than “dog bites man”. What’s normal (going to a college you can afford with minimal debt) doesn’t yield ratings so the abnormal gets extra exposure.
Many parents have saved money for their kids college.
45%-75% interest rate?? You need to take a personal finance course in high school.
Actually…MOST college students have zero dollars in college savings from their parents or anyone else. Many choose community colleges. Others commute to public universities near their homes. Others get merit aid. Others don’t have savings, but their parents have sufficient income to pay the costs.
But mostly…NO ONE…repeat…no one…has to go to a $60,000 Plus a year college. No one.