Student Loans Equal Student Debt and Repayment Plans

Cassie Scott cscot852@uwsp.edu

As the cost of tuition increases, so does the fear of students having to take out more and more loans to pay for their education.

Students who take out loans are easily sucked into the realm of student debt. That can be a problem for many after they graduate and realize they have to pay the money back.

It is important that students first understand what student loans are and how they should approach the repayment process.

Carol Scipior, the associate director of the financial aid office at the University of Wisconsin–Stevens Point, wants students to realize the importance of student loans and student debt.

“Over 70 percent of UWSP students receive some form of financial assistance,” said Scipior. “The financial aid package may include loans, grants or work study and is based on a very strict federal formula.”

Students may qualify for the Federal Direct Loan program, which offers subsidized and unsubsidized loans, as well as the Perkins Loan Program.

The federal formula used to determine a student’s need is based off of information collected about a student’s parental income, the student’s age, financial income, size of their family, how many of them attended college and their cash savings and investments from the free application for Federal Student Aid. “Not all students qualify for grants, work study, or even subsidized government loans and they may have to take out unsubsidized or private loans to supplement their funds. Middle income families get hit the worst,” Scipior said.

Students who don’t qualify for sufficient financial assistance under the government’s Federal Direct Loan program sometimes resort to taking out private loans.

Sherry Nelson, the student loan specialist at UW Credit Union in Stevens Point notes that UW Credit Union has been offering private loans since 2006 and since then has provided $4.8 million in loans to UWSP students.

“For the 2013-2014 school year so far, we’ve provided loans to over 70 students with an average loan amount of $7,260,” Nelson said.

She explained the difference between government loans and private loans.

“Essentially, the government is acting as the lender for any federally- guaranteed student loan and they are able to provide many different deferment and repayment options,” Nelson said. “Whereas, private student loans are through a financial institution, like UW Credit Union. They will have requirements specific to that institution’s financial loan program. Deferment options and repayment terms often differ from federal loans.”

Another difference is that government loans aren’t based off a student’s credit history, so a cosigner is not needed. However, a cosigner will typically be needed for a private student loan because students generally have limited credit history.

“Students have six months from after they are out of school and must start to make payments on their loans. A standard payment plan lasts about ten years, but there are other options available if students can’t make their payments,” Scipior said.

Sara Kline graduated from UWSP in May 2011 with a bachelors degree in sociology and recently earned her master’s degree in rehabilitation counselling from Minnesota State Mankato in May 2013.

She is now a part of the workforce and does feel stressed about being in debt, especially since she will start her repayment process in November.

“It’s quite intimidating to have a debt of any kind, whether it’s for a car, house or student loans, but I know my education was a worthwhile investment,” Kline said.

She gave some advice to students in school who are taking out loans.

“Save as much as possible. Put money away every chance you get. Six months is a short amount of time to get your feet under you financially, so having a head-start can be a big help,” Kline said.

Scipior noted that UWSP students have been extremely punctual about paying back their student loans.

The percentages reflect the amount of students who had difficulty paying back their loan money.

“Our students have a good repayment history. The most recent Two-Year Cohort Default Rate for UWSP students is 2.8 percent. The Wisconsin average is 6.0 percent and the U.S. average is 9.1 percent,” Scipior said.

In most cases, understanding the debt and knowing the repayment options will help a student manage it in the long run.

“It is important to know what you owe and how much it will cost in repayment,” said Scipior. “The more money you take out, the more debt you are in.”

“It’s essential that students educate themselves on all of the loans they’re borrowing throughout their student career,” said Nelson. “Keeping documentation, paying attention to loan balances, returning unused/unneeded funds and making interest payments whenever possible is important.”

If students are conscious of their loans and total indebtedness, as well as have a financial limit and are cautious when spending money, they are off to a good start for a positive financial future.

“If you aren’t very savvy with planning and budgeting, meet with someone who is, like a financial planner, to help you figure out your payments and budget. Planning goes a long way in keeping yourself on track,” Kline said.

Regardless of numbers and statistics, Scipior wants individuals to know if they ever get into trouble or are unable to pay back their loans, they shouldn’t stop payments, but they should contact their loan servicer because there are other options.

To access your student loan information, visit the National Student Loan Database.