Student Loans And Economic Disparities: Bridging The Gap – While a college education is a priority for many people, the ever-increasing costs threaten to push it out of financial reach. If you don’t have the savings to cover the cost of a college education, check out your loan options.

The US Supreme Court blocked the student loan forgiveness plan from taking effect in June 2023, ruling that President Joe Biden had exceeded his authority in issuing the plan. The Biden administration responded by launching a new plan called Saving on a Valuable Education (SAVE). The plan allows eligible borrowers to reduce their monthly payments, shorten the maximum time period for loan repayments, and avoid some interest charges.

Student Loans And Economic Disparities: Bridging The Gap

Student Loans And Economic Disparities: Bridging The Gap

The application for the SAVE plan is expected to be available in the summer of 2023. People who have enrolled in the REPAYE plan will automatically be put into the SAVE Plan.

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Private college loans can come from many sources, including banks, credit unions, and other financial institutions. You can apply for a personal loan at any time and use the money for any expenses you want, including tuition,  room and board,  books, computers, transportation, and living expenses.

Unlike some federal loans, private loans are not based on the borrower’s financial need. You may need to pass a credit check to prove your creditworthiness. If you have little or no credit or bad credit history, you may need a cosigner on the loan.

Private loans may use higher loan limits than federal loans. The repayment period for student loans from private lenders can also vary. While some may allow you to defer payments until you graduate, many lenders require you to start paying off your debt while you’re in school.

Federal student loans are administered by the US Department of Education. They tend to have lower interest rates and more flexible payment plans than private loans.

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To qualify for a federal loan, you must complete and submit the government’s Free Application for Federal Student Aid (FAFSA).

The FAFSA asks several questions about the student’s and parent’s income and investments as well as other issues, such as whether the family has other children in college. Using that information, the FAFSA determines the Expected Family Contribution (EFC). That number is used to calculate how much aid you are eligible to receive.

The confusingly-named EFC has been renamed the Student Aid Index (SAI) to explain its meaning. It does not indicate how much students must pay for tuition. This is used to calculate how much student aid an applicant can receive. Relabeling will be implemented by the 2024-2025 school year.

Student Loans And Economic Disparities: Bridging The Gap

Financial aid offices at colleges and universities decide how much aid to offer by subtracting your EFC from the cost of attendance (COA). Cost of attendance includes tuition, required fees, room and board, textbooks, and other expenses.

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To help bridge the gap between college costs and what families can afford to pay, financial aid offices put together aid packages. The package may include some combination of federal Pell Grants, federal loans, and paid work placements.

Schools can also use their own resources to offer—for example, merit scholarships. The basic difference between a grant and a loan is that a grant does not have to be repaid (except in rare cases), while a loan is final.

The federal government is making provisions to help student loan borrowers during the COVID-19 pandemic. The Coronavirus Relief, Assistance, and Economic Security (CARES) Act, passed in March 2020, ended mandatory repayments on federal student loans and froze the interest charged. After several extensions, interest charges will resume on September 1, 2023, and repayments will be due from October 1, 2023.

A separate Biden administration plan to forgive part of millions in student loan debt was blocked by the US Supreme Court in June 2023.

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The administration immediately launched a new plan called Saving on a Valuable Education (SAVE). The plan allows eligible borrowers to reduce their monthly payments, shorten the maximum time period for loan repayments, and avoid some interest charges.

It’s important to note that these proposed changes only apply to federal student loans — not to private loans. Borrowers who need help with their personal loans should contact the lender for whatever they have to offer.

The William D. Ford Federal Direct Loan Program is the largest and best known of all federal student loan programs. These loans are sometimes referred to as Stafford loans, the program’s previous name. There are four basic types of federal direct loans:

Student Loans And Economic Disparities: Bridging The Gap

Note that provisions in the American Rescue Plan make all student loan forgiveness tax-free from January 1, 2021, to December 31, 2025.

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These loans are given to students depending on their financial needs. The government subsidizes loan interest while students are enrolled at least half-time.

You are not charged interest on the subsidized loan until you graduate, and then you have a grace period of six months after leaving school before you have to start repaying the loan.

Unsubsidized loans are available to students regardless of financial need. Unlike subsidized loans, interest starts accruing as soon as you receive the funds and continues until the loan is paid in full.

Independent students applying for direct loans (as opposed to dependent students applying with their parents) may qualify for an unsubsidized amount of funding.

Private Vs. Federal College Loans: What’s The Difference?

PLUS Loans are designed for parents of students and are not based on financial need. They have a number of attractive features, including the possibility of borrowing the full cost of attendance (minus financial aid or other scholarships).

They also have relatively low fixed interest rates (but are higher than rates for other types of direct loans) and offer flexible payment plans, such as the ability to defer payments until the student graduates.

PLUS Loans require the parent applicant to pass a credit check (or obtain a cosigner or endorser) and reapply for funding each academic year. The mother is also legally responsible for repaying the loan.

Student Loans And Economic Disparities: Bridging The Gap

When it’s time to pay off student loans, the government offers direct consolidation loans, which you can use to combine two or more federal education loans into a single loan with a fixed interest rate based on the average rate of the loans you’re consolidating.

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You can’t consolidate private loans using the federal program, but private lenders can consolidate your loans, both private and federal, by paying off your old loans and issuing new ones. This is often called refinancing.

Refinancing with a private lender can get you a lower interest rate in some cases, but you’ll lose the flexible payment options and consumer protections that come with federal loans.

If you have federal and private loans, it makes sense to consolidate the federal through a government program and refinance the other with a private lender.

Private college loans come from sources such as banks, credit unions, and other financial institutions. Federal student loans, administered by the U.S. Department of Education, typically have lower interest rates and more flexible repayment plans.

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Private loans, unlike those from the government, are not based on financial need. Borrowers may have to pass a credit check to prove their creditworthiness. Borrowers with little or no credit history or poor credit scores may need a cosigner on a loan.

To qualify for a federal loan, you must complete and submit the Free Application for Federal Student Aid, or FAFSA. Borrowers must answer questions about the income and investments of the student and their parents, in addition to relevant matters, such as whether the family has other children in college. Using that information, the FAFSA determines the Expected Family Contribution, which is rebranded as the Student Aid Index. That number is used to calculate how much aid you are eligible to receive.

Loans are a resource available to help students and their families pay college bills. Both private and federal loans have their advantages and disadvantages, depending on your situation.

Student Loans And Economic Disparities: Bridging The Gap

Private loans, administered by banks and credit unions, are similar to other types of loans, meaning a credit check is required. Federal loans are often based on need with lower interest rates and flexibility in repayment. Those who do the necessary legwork will find the option that best meets their needs.

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Require writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also show original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

The offers that appear in this table are from partnerships from which they receive compensation. These compensations can affect how and where listings appear. not including all offers available in the market. In order to finance higher education, Black families—already disadvantaged by generational wealth disparities—rely more heavily on student debt, and on a riskier form of student debt, than white families do. The additional risk that Black students face when taking on student debt is exacerbated by other disparities in the higher education system, including predatory for-profit colleges that engage in race-based targeting. The disparities continue

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