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| Reality Check (18-25) |
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First Steps Toward Good Credit
By Tiffany Linder
Credit is something that will follow you throughout your life and having good credit can help you. The most important stage of credit is the very beginning. It’s all about how a person starts out. This is so important because the beginning sets the tone for the rest of the credit life. If a person starts out with no knowledge of credit and finances, they could very easily end up in debt, which is hard to get out of.
Starting off with knowledge about earning, spending, and borrowing and the system based upon it can really help a young person begin down a brighter financial path. A good way to seek this guidance is to go to the credit union, there’s always someone to talk to there and answer your questions. Another way is to discuss credit issues with someone who has already accumulated a credit history, such as a parent or family member. They will be able to tell you the good and bad choices they may have made and how you can learn from them.
Once information has been gathered, the next best thing is to sit down and create a credit plan that will best benefit the life you anticipate. This means if you’re a college student and have acquired student loans, you must figure out approximately how long it will take you to pay them back, and how this loan will affect your life as long as you are paying it back. For example, I am a college freshman and I estimate that it will take me 10 years after I graduate to pay my student loans back. During this time I understand that I should not make any large financial changes so that I can reach my financial goals.
Being smart about credit is the best advice for a young person just starting out. Having a good credit standing can help you out if you ever find yourself in need of a loan. Remember, nobody’s perfect, but don’t let this fact impact your ability to have good credit.
You want a lot from life. You have goals, you have dreams, and you have plans. The Michigan Credit Union League can help you make good financial decisions, decisions that will put you on the road toward the place you want to be. Click here for Credit Unions Rock!
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Student Loans
Investing in a college education will pay dividends for years to come and we're committed to providing you with the products and the knowledge you'll need to finance your college education.
Lending Options - Federal Stafford Loans
- Subsidized Loans are need-based Stafford Loans. With this loan, interest is paid by the government while you are in school and during the six months following graduation.
- Unsubsidized Loans is a version of the Stafford Loan where the interest is paid by the borrower, but it may be deferred until graduation, or paid while you are still in school.
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The Stafford Loan is a simple interest loan (unlike credit cards, home equity loans and other loans which are compound interest), with the rate capped at 8.25%.
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Maximum Loan Amount - varies according to the year of school you are in.
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You won't need to make payments until six months after you leave school or drop below half-time status.
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The standard repayment schedule includes a maximum repayment period of 10 years, with a minimum monthly payment of $50 (see Repaying the Loan for other options).
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The Federal government charges a 3% loan origination fee, and the Guarantor can charge a guaranty fee of up to 1%, with the fees being deducted from your loan proceeds. Guarantee fees to attend accredited two and four-year public and private undergraduate institutions, graduate and professional schools are waived.
Applying for a Student Loan
- Complete the free application for Federal Student Aid (FAFSA). This must be done for each academic year you would like to receive federal aid. You can obtain a FAFSA application from your high school guidance counselor, your college financial aid office,the Department of Education's web site at www.fafsa.ed.gov or call 1-800-4FEDAID. FAFSAs are accepted and processed after January 1st of the year a student is planning to attend school. If you want to apply for a student loan, be sure to check "yes" to that question on the form. The sooner you complete the form, the earlier you will know if you are eligible for grants and student loans - and their respective amounts.
- A Student Aid Report (SAR) will be created once your FAFSA has been processed. You will receive a copy and so will the schools you listed on the FAFSA. You should receive the SAR in four to six weeks, or two to three weeks if filed electronically.
- You will receive an award letter from your school notifying you of your financial aid award for the coming academic year. If you qualify for a Stafford Loan, the school will either include a Master Promissory Note (MPN) with your award letter or instruct you to get one from a lender. Although the award letter may include a preferred lender list, you still have the right to choose your credit union. To do this, just fill in our name and lender code (see back of brochure) when you complete the MPN.
- Return the completed MPN to your credit union.
- If your financial aid is not sufficient to cover the costs or you don't qualify for a Stafford loan, your parents or stepparents can apply for a PLUS loan. Call or stop in for an application.
- Loans are disbursed in two or more payments on dates that are established by the school. The funds are sent directly to the school.
Repaying the Loan
There are several different payment options. Loan repayment on a Stafford loan begins six months after you graduate, drop below half-time enrollment or withdraw from school. By making these payments on time, you preserve your credit history, which will help you when it comes time to buy a house or an automobile. Ask us which of the following payment options you qualify for:
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Standard Payment: The standard payment includes regular principal and interest payments over 10 years, with a $50 minimum monthly payment.
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Graduated Payment: You'll start out with a low payment as you enter the job market, and gradually payment amounts will increase as your earning power grows.
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Income Sensitive Payment:Payments are tied directly to a percentage of your income (from 4% to 25%). This allows you to stretch your repayment period up to 15 years.
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Extended Repayment: For borrowers who have accumulated debt greater than $30,000 with a first loan disbursement on or after October 7, 1998, repayment can be extended up to 25 years.
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Tax Deductions & Credit: You may qualify for either a tax deduction or tax credit, if the purpose of the loan is to finance educational expenses for yourself, your spouse, or your dependent at an eligible institution. You'll need to consult with your tax advisor for more information.
For Your convenience we have placed a student loan reference guide and the master promissory note for the federal student loan and the federal plus loan. Click on the links below for the the document that you would like to view.
FOR MORE INFORMATION CONTACT:
Note: Prospective borrowers must be at least 18 years of age to apply for a loan.
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