Personal Student Loans

Not every student arrives at college fresh out of high school. A growing number of students over the age of 25 are returning to the college classroom or enrolling at a college or university for the first time — a trend that means more independent students are seeking financial aid and student loans as a way to pay for college.

This trend also means that some returning students may have already exhausted their available federal student loans. Federal college loans not only carry annual borrowing limits but lifetime maximum borrowing limits. Students returning to college who previously took out federal college loans their first time around may have less federal student loan money available to them.

The Association for Non-Traditional Students in Higher Education reports that students over the age of 25 represent nearly half of all currently enrolled college students. This migration back to the classroom is not merely the product of the current economic downturn, however: According to the U.S. Department of Education, the number of students age 25 or older in college classrooms rose from 28 percent in 1970 to 41 percent in 1998. The number of students age 35 or older at degree-granting institutions increased from 823,000 in 1970 to nearly 3 million in 2001.

Clearly, the current “aging” of the college student population was underway long before the Great Recession took hold.

Finding Financial Aid as a Returning or Older College Student

Determining eligibility for federal financial aid as an older student can be challenging. In some cases, today’s older student may be relatively well-established financially and may hold a number of assets, including real estate, investments, and retirement savings. At the same time, the older student may have additional liabilities, including a mortgage, credit card debt, and student loan debt from a previous run at the college-and-university track. S/He may also be supporting children who are themselves in college.

The FAFSA

For any student, regardless of age or level of educational attainment, the first step in finding financial aid for college need to be the filing of the Free Application for Federal Student Aid (FAFSA). The FAFSA takes into account a student’s broad financial picture — from income, assets, and liabilities to the number of other family members in college — to determine eligibility for federal financial assistance.

Federal financial aid can include need-based grants (Pell Grants) and subsidized student loans (Perkins loans and subsidized Stafford loans), as well as unsubsidized student loans (unsubsidized Stafford loans) that are available regardless of a student’s financial need. For graduate students, credit-based graduate student loans (Grad PLUS loans) are also available.

The Financial Aid Office

If you’re a returning student, a consultation with a financial aid officer at your institution could be very helpful, since rules and regulations regarding student financial aid have changed significantly in the past few years. A financial aid officer may also be able to help you determine your eligibility for federal student loans and how previous student loans may affect your current borrowing limits.

Your financial aid office will also have information about locating grants, scholarships, and work-study opportunities, though many older adults may already be employed full-time. Consider asking your financial aid office about student loan companies that offer non-federal, private student loans, which may be used to pay schooling costs not already covered by your federal student loans or other federal financial aid.

Other Financial Aid Considerations

Returning students may also be eligible for itemized tax deductions related to college expenses. These tax deductions may help take the bite out of returning to school. Consult a tax advisor for help.

Federal financial aid is largely reserved for students who are seeking a degree, although in some cases, non-degree-seeking students may be eligible for federal financial aid if the courses they take are prerequisites for a degree program.

Keep in mind, however, that as a student loan borrower, you’ll be on the hook for any student loan debt you incur, even if you don’t complete a degree as planned. Current U.S. bankruptcy law prohibits bankruptcy courts from discharging either federal or private student loan debts except in the most extreme of circumstances, so if you’re a prospective returning student, make sure to thoroughly research all your academic options and their costs before entering a degree program that will require you to take on significant debt from student loans.

Consolidation of student loans

For recent college graduates or those nearing graduation, student loans can be a heavy financial burden.  It will soon be time to begin repayment.  A question many people have is whether they should consolidate the loans or not.

All student loans fall into one of two categories, federal loan or private loans.  Loans issued by the federal government include PLUS, Perkins and Stafford.  Loans issued by a bank or other financial institution are of course private.  Since federal loans and private loans have different rules for interest rates, it’s often best not to consolidate them if you can avoid it.  Federal loans also offer more protection to the borrower in the form of deferment and cancellation that will likely be lost if you consolidate them with private loans.

Consolidation usually works by setting the new interest rate equal to the average of all included loans, with an additional 1/8% tacked on for good measure.  When consolidating, the loan company will often offer incentives in the form of lower interest for such things as automatic withdrawals and paying the loan on time for several consecutive months.

As of the beginning of 2009, students can base their repayment of student loans based off their income.  Loan companies can only charge you up to a certain percent of your current income.  The rate is calculated based on the difference in your income and 150% of the poverty level.  Any debt you have not paid off in 25 years will be cancelled.

Once you have decided that consolidation is the right choice for you, the next step is to shop around.  Search for discounts, the lowest rates, fewest penalties, etc.  There are many institutions and companies that offer loan consolidation and they all compete with one another.  Use this to your advantage.  Be especially wary of companies that charge a penalty for early repayment of a loan.

Several online sites can assist you in finding the best option and rates for loan consolidation.  Studentloanconsolidator.com, loanconsolidator.ed.gov, chasestudentloans.com and studentloan.com are all excellent resources you should take advantage of before making your final decision.  Repaying a loan can be a long road so make sure you are happy with the lender before signing the papers.

Many individual states also offer loan consolidation programs.  Explore these options if they are available and weigh them against what the private lenders are offering you.  Often the state will give you the best rate, but not always.  Do your homework and plan ahead.

The biggest benefit of student loan consolidation is the ability to make one lower payment each month.  Remember that in the long run you will end up paying more in the form of interest.  The convenience factor may also make consolidation more attractive to some.  this is especially true if you have loans with similar interest rates from numerous sources.  There is no one right answer and only you and your financial advisor can decide your best option.  Congratulations of graduating college.  Welcome to the real world.