Student Loans

Student loans dangerous to credit rating

By Brian S. Armstrong
Staff writer

Student loans are a great option for students needing extra money to finance their education. These loans can be a very helpful option, but they can be equally as dangerous.

To be eligible for a student loan the student must be taking at least 6 credit hours and must have filled out the Free Application for Federal Student Aid (FAFSA).

There are limits set by the government on the amount a student is able to borrow: $2,625 for first year students, $3,500 for second year.

Loans come in subsidized and unsubsidized forms. A student must be deemed eligible to receive a subsidized loan. When a loan is subsidized, the government pays the interest on the loan while the student is in school.

Repayment on loans is expected to begin six months after graduation or after the last semester of attending six hours or more.

An unsubsidized loan is a non-need based loan. The interest is accrued over the course of the student's enrollment in college. When a person graduates, the amount owed is higher than the original amount borrowed on an unsubsidized loan because the interest has built up while in college.

Students do have the option of paying the interest while they are in school.

Subsidized loans are based on the student's need. The amount of need is determined by using the cost of attendance, the student's budget and the estimated family contribution (EFC). If there is still unmet need after factoring these variables, then a student is eligible for a subsidized loan.

Student loans are easier to get than a car loan, for example, but they are just as dangerous to credit rating if not paid back.

"I don't think a lot of students realize that this has to be paid back… they anticipate making way more than they're actually going to make," said Gail Campbell, financial aid adviser. She added, "Three or four years down the road, even with a college degree and making a good income… chances are you will have a house payment, a new car and may even have children by that time."

Future responsibilities can greatly affect the amount of money one has to put toward paying these loans. Carefree borrowing leads to trouble when people suddenly find themselves owing huge amounts of money upon graduating.

According to Campbell, the best thing to do is to only borrow what is needed and not try to live off the student loans. She recommends keeping a part-time job to help with living expenses. That way, students don't have to depend so heavily on student loan money.

"Student loans are intended for educational purposes," Campbell said

Many students use the money to cover living expenses, which in some cases is necessary, but the financial aid system is not set up for that. The purpose of financial aid is to help needy students pay for their educational expenses.

Students are highly discouraged from borrowing money for uses other than paying for tuition, fees, books and other education related costs.

Student loans are similar to credit cards in that the end result of the borrowing doesn't seem to factor into the thought of "easy money."

When students let their loans go into default status the financial aid office knows about it. They receive reports of unpaid loans. If a person has a default loan in their report, they are not eligible for any other type of financial aid, including the Pell grant and HOPE scholarship.

"We try to counsel students to help them on down the road because they are not seeing it now, and we are. We try to talk to them and discourage them," said Campbell, about trying to keep students from borrowing more than is needed and putting themselves in a financial bind later on. She added, "We're doing it in their interest."

Student loans are a very helpful option to have, but students should remember that it is a serious matter and they do have to be paid back. The Financial Aid Office is available for further information on student loans and can be contacted at [email protected] or at (706) 295-6311.