Community colleges are a great engine for social mobility (perhaps even greater than many of the state school systems). Unfortunately, when it comes to funding they also get the very short end of the stick. In California, community colleges are being squeezed in the state budget, meaning that even though they are very inexpensive relative to private and even most state schools, there is often very little (if any financial aid available). The article below discusses another avenue for funding an education that is increasingly unavailable to students who enroll in community colleges: private loan.
In the hierarchy of student financial aid, private loans aren’t high on the list - primarily because they are one of the more expensive options. The best forms of financial aid are grants because they don’t have to be paid back (essentially, the school is giving you free money). This is also why the most selective private colleges are also the most affordable - they are so rich that they can give tons of student grants. The next best thing to grants are subsidized loans. These loans often come from the federal government and are attractive because you get some kind of discount (hence the word “subsidized”). Sometimes you will get a slightly lower interest rate than the market is currently asking for a loan. In addition, the interest rate is fixed so that, unlike many private loans, you will know exactly what your interest rate is going to be throughout the term of your loan (many private loans are “variable”, meaning that the interest you are charged by the bank may increase based on the market conditions). Subsidized loans may also defer your interest so that it doesn’t start accumulating until after you leave school. Private loans are generally the least preferable option, but they are better than having no source of credit or not. For example, my financial aid package for grad school (which is much less generous than anything you will find at a leading undergraduate institution) will consist entirely of student loans. Some of it will be subsidized, but the amount of federally subsidized student loans I can borrow is limited by law (and it is an even lower amount for undergraduates). It is likely that I will also need to get unsubsidized loans (which at least offer fixed interest rates) and graduate PLUS loans to cover the rest of my law school expenses. If I were an undergrad attending a school that awarded me very little in grants, I’d likely have to take a private loan out to cover all of the amount that I’m borrowing in PLUS loans and some of the money that I am borrowing from unsubsidized direct loans.
In any case, take a look at the link below and remember the take home message: A highly selective school can be the best choice for you from an academic standpoint, but it is frequently the clear choice from an economic one!
http://www.nytimes.com/2008/06/02/business/02loans.html?pagewanted=1&_r=1
Tags: Financial Aid, loans
