Student Loans
A Review of the PA Forward Student Loans

If you’re a PA resident, there are some options to help pay for college in a way that will not break the bank. You must first look to maximize grants & scholarships. That’s priority number one – no exceptions! You absolutely want to make sure you’ve budgeted for college. Failure to plan is indeed planning to fail as an old, famous Pennsylvania resident has been attributed to saying. But it’s rare that you’ll be able to get through everything in the budget process without some student loan. When you find that is the case, there’s a smart way to do that. Here’s a guide on how to manage student loans for PA residents, with information on a review of the PA Forward Student Loans.

What Student Loans are available?

Before we get into the review of the PA Forward Student loans, let’s start by discussing the Federal Direct Loans. There are two main ones available to undergrad students – Direct Subsidized and Direct Unsubsidized loans. Generally speaking, the difference between the two is that the Subsidized loans do not have interest capitalize while the student is in school, while the Unsubsidized do have interest capitalize.

The good news with these loans are all you need to do is complete the FAFSA to qualify. It’s a fixed, low interest rate and the repayment terms are super-friendly. In nearly any financial aid package, these loans are automatically included. If you need to take out loans, you’d need to sell me on the idea why you wouldn’t start with these.

Bridging the Gap

What if these loans don’t cover the cost of college? In many cases, they will not. You’re eligible for $5500 the first year, $6500 the second year, and $7500 each of the next two years. For many families, this is a piece of the pie, not the pie. Therefore, we need to consider other loan options. There’s the First National Bank of Grandma and Grandpa. Great place to start – but that bank may be closed for business. Then there’s further Dept. of Education loans – specifically Parent PLUS loans. When paying for undergrad, these are taken out by the parents of the students. They follow similar repayment plan rules as the loans you see with undergrads, but there are some notable differences. Specifically, they’re not eligible for every type of income-driven repayment plan that’s available to Direct Loans for undergrads (also known as the Stafford Loans). Also, there’s a sizable origination fee, it’s solely in the parents’ name, and interest will capitalize immediately. They are an option, but not the best necessarily.

Private loans through banks may also be an option, but can have stricter rules. For example, repayment terms are almost always more strict than Direct loans, interest rate could be variable, and the process for finder a co-signor could be a challenge for some.

So is there a better way? I think so. The key term is better, not necessarily perfect. Enter, PA Forward Student Loans.

PA Forward Student Loans – An Alternative Way to Pay

There are a few things you should consider when looking at these loans, with both positives and negatives. I’ll offer my take for you.

Positives

  1. Relatively low, and fixed interest rates: In our current rising interest rate environment, it is a good idea to stick with a fixed interest rate. When the Fed raises them, your payments will go up as the interest rises. With these lower interest rates, it is a competitive way to pay for school.
  2. Interest Rate Rewards: It’s good to be rewarded. That’s what these loans can offer – 0.5% interest rate deduction for graduating. Another 0.25% deduction for Direct Debit payment approval. That’s a great incentive to graduate and start saving money!
  3. No pre-payment fees or Origination Fees: Origination fees are a great way for a lender to sneak in an added fee right off the top. They’re not ideal for borrowers. And if you’d like to pay off your debt sooner than later, a pre-payment penalty is a killer. These loans don’t hold either.
  4. Flexibility in pre-payment: You can choose how you’d like to repay in 4 different ways. 1 – Interest only (that way the interest won’t capitalize). 2 – Immediate Repayment (for you eager beavers). 3 – Partial Interest Payment (if you want to attack it but are cash-flow strapped). 4 – Full deferral (if your focus is getting through college first).
  5. Friendly terms to repay: You could pay in increments of 5, 10, or 15 years.

Negatives

  1. Co-signor required: It will require a credit check, and a co-signor is required or at least recommended. But good news – after 48 consecutive, on-time payments by the graduate, the co-signor can be removed.
  2. Eligibility Required: You must be a PA resident attending a Title IV school or surrounding state resident attending a PA school to qualify.

Takeaways

Overall, I think this can be a great option. There are some T’s to cross and I’s to dot, but if you qualify, I think this can beat PLUS loans or bank-issued private loans as an option. The PA Forward Loan should no doubt be considered – and can help pay for the cost of college in an effective and efficient way. Disclaimer – a review of the PA Forward Student Loans should be considered solely as a part of the plan – not the entire plan.

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Student Loan Planning