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Going After a Loan
the money you need to tear
A loan can furnish
you need to learn—before you start to earn.
Borrowing:
Tips on Breaking the Red Tape
You might be able to get a
loan for college, you say, if
only you could wade through
all that red tape and decipher
all that financial mumbo-
jumbo. But applying for and
obtaining a loan isn’t all
that difficult if you take it
step by step.
First you need the appro
priate application. Forms for
federal loan programs can
be obtained at your college
financial aid office or region
al Office of Education. Other
forms are available from in
dividual lenders.
Second, you’ll need to deter
mine the maximum amount
you can afford to borrow and
the time it will take you to
repay it. Compare interest
rates. Federally backed loans
run 3 to 7 percent annually,
while commercial loans can
cost you 12 percent or more.
Find out the “true annual
interest rate”—the amount
you’ll actually be paying.
Taking out a commercial
loan requires a little more
homework than getting a
federally sponsored loan.
You—and your parents, who
will probably be cosigning
the loan—should find out
whether you’re required to
purchase extra insurance and
whether you can increase
the frequency and amount of
repayment. What is the charge
for missing a payment?
Keep in mind that all
loans—federal, state, com
mercial, or whatever—must
be repaid. To repay a $6,000
loan at 7 percent interest
requires payments of $118.81
per month for five years.
Will you be able to swing it?
Finally, with any kind of
loan, don’t sign anything
until you understand every
thing. Shop around for the
best interest rate. Don’t be
reluctant to ask questions.
After all, you’ll be living with
your obligation for years.
—Katie McManus
Junior at Albion College
and holder of a Guaranteed
Student Loan
"Nobody should have
to quit school because
they can't handle the
costs. Getting a loan
took a lot of time
and energy, but
it was worth it. ”
Dialing for Dollars
The federal Student Infor
mation Center hotline pro
vides a fast, friendly, and
personal approach to your
search for funds.
The hotline can give you
information on any of the
loan, grant, and scholarship
programs administered by
the Department of Educa
tion. It can put you on the
right track to your home
state’s programs, and can
even give you the names of
banks in your area that are
authorized lenders under the
Guaranteed Student Loan
Program.
Information on special aids
for older students, minori
ties, and the handicapped is
available through the hot
line, and its personnel will
mail you financial aid appli
cations and booklets. Call 1-
800-638-6700 nationwide, or
1-800-492-6602 in Maryland.
Parental Loan Program
About 20 private colleges are easing the tuition squeeze on
middle-income families by offering loans at low interest
rates.
The Parental Loan Program aids parents whose incomes
are roughly $20,000 to $60,000—too much to qualify for
financial aid, yet often not enough to cover tuition at an
expensive private school. Interest rates on the loans range
from 7V2 to 12 percent, with funds provided by individual
schools. Stanford University lends $2 to $3 million per year,
with the typical loan averaging $4,500. Other participating
schools include Harvard, Princeton, Wellesley, and Mills
College.
Default:
Don’t
Do It
A word about default: Don’t.
With nearly $1 billion in
delinquent payments to col
lect, the days when schools
or the government wouldn’t
take the trouble to track down
students who failed to repay
educational loans are over.
Threatened by cuts in federal
funds, schools are pushing
hard to collect over $700 mil
lion in delinquent National
Direct Student Loan money.
And the government, aided
by a beefed-up staff of over
600 collectors, is chasing af
ter the more than $288 mil
lion still outstanding in the
federally run Guaranteed Stu
dent Loan Program.
The default problem peaked
in the ’70s as a result of lax
collection efforts and borrow
ers’ confusion about the ne
cessity for repayment. To
day, schools and the govern
ment are turning to a variety
of proven collection methods:
computerized billing systems,
which remind borrowers of
their debt each month; the
Internal Revenue Service,
which provides up-to-date ad
dress information; and pri
vate collection agencies,
whose incentive is a commis
sion of up to 30 percent of the
money they collect.
Defaulters who have ac
tively ducked repayment are
taken to court when caught.
Those judged to be merely
negligent usually pay when
tracked down. And those
who can’t pay because of
financial problems usually get
an extension.
On all sides, the message
is clear: If you take out a
government loan, be prepared
to pay it back.
10 INSIDER