Students Need To Be Aware Of Debt Management

If you haven't heard, student loan interest is now a tax deductible item on
your personal tax return. On August 1, 2005 the cap on the old maximum
student loan rate was lifted, and the new one was pushed into effect. So
exactly what is going to be the affect on your existing student loan going
to be you may be wondering. How will this now change the end result of the
parent or students tax return?

A lot of the associations that offer student loans told students that their
best bet was to consolidate the existing loans and lock in the new lower
interest rate, while it was still available, so that the new rate would
affect their upcoming tax returns.

The interest rate of a federal subsidized loan does not have the same huge
affect as it does with a private or unsubsidized loan. When obtaining a
deferred payment loan, which will also defer the interest payments on the
loan, can drum up huge amounts of additional debt for the borrower since the
interest actually accrues interest leading to a huge amount of debt very
quickly. So this should tell you the huge effect the new law will have on
those with student loans.

The government, over a span of the last couple of years or so, has tried to
promote the advancement of continued education, therefore allowing a
deduction to be made on the interest payment of student loans.

This deferred payment arrangement will allow the student to borrow the
money, attend to their studies without the worries of payments over their
head, and then after completing their education and obtaining their degree
beginning their monthly payments. These types of deferred payment plans come
in to types from the government; unsubsidized and subsidized.

For students with need of financial assistance, the subsidized is prevalent.
On this type, the government will pay the interest that is accrued until the
time that the student is finished with school. The unsubsidized is the exact
opposite, and the student will be responsible for the interest payments as
it is accrued.

Lenders have become wise to the benefits for them when it comes to deferred
payments plans, in which the interest builds on top of the interest each and
every month, as it builds onto their balance every single month. This
generates huge income for the lender.

The private loan sector has made a frequent business with the deferred
payment loan, due to the fact that they are free of federal lending
requirements that are normally attached to this loan type.

It's usually fairly easy for these lenders to grant these loans because
students don't usually realize the effects that these loans are going to
have on their balance in the beginning, and blindly except and sign a
contract on these terms. Usually at this point in a students life, debt
management isn't a prevalent concern and the lenders are aware of this.
Advice to these students should be to find a good credit counselor to assist
them in looking over their choices before hastily signing on for any loan.

About The Author: Clinton Maxwell writes especially for
http://www.debtania.com , a website with topics around managing money and
finance. You might discover his work over at
http://www.debtania.com/personalloan.html and various other sources for
personal loan to consolidate debt knowledge.