The United Methodist loan program is offering a new option with lower interest and earlier repayment to help United Methodist college students struggling with increasing debt.
BorrowSmart allows college students who are members of United Methodist churches to borrow $5,000 at 3.75 percent interest and begin repaying the loan in 90 days at $50 a month instead of deferring repayment. Students do not begin repaying most traditional student loans until six months after graduation or if they withdraw from school.
"This is a win-win option," said Allyson Collinsworth, director of the United Methodist Board of Higher Education and Ministry's Office of Loans and Scholarships. "It reduces the total amount the student must pay back, and the earlier payment schedule protects the investment of the faithful United Methodists who donate to the loan programs through the United Methodist Student Day offering each November."
Since the number of loans the office can give is based on repayments, interest collected and donations, the earlier repayment option could mean more students can get loans.
To Apply for a United Methodist Student Loan
Loan applications are open now for the 2012 fall semester. You may apply for a United Methodist loan if you are an active, full member of The United Methodist Church for at least one year before application, are admitted to a degree program at an accredited institution within the United States and maintain at least a C average. Co-signers are required for all loans.
Collinsworth said she hopes the earlier repayment schedule will mean students will be more aware of the amount of debt they are incurring.
The Federal Reserve Bank of New York estimates student loan debts now exceed credit cards and auto loans, and more than 37 million Americans owe $870 billion in student loans.
Save in the end
Wee-Li Tan, whose daughter Hillary is a junior at Hendrix College, a United Methodist-related college in Arkansas, said he looked at the calculations listed on the loan application comparing the total payback for each option and decided BorrowSmart would save his daughter money in the long run. Tan said he will make the payments until his daughter graduates and gets a job; then she will take over and pay him back.
"This is not an option everyone will be able to take advantage of it, but it is a savings for those who can," he said.
He also said students might be better able to manage the early payback in the last year or so of college if they had a good summer job or some savings and could make payments for a year or two to reduce the total amount owed.
"If a student is working to pay all their expenses, I doubt they can begin payments in 90 days. But parents or co-signers might be willing to make the payments for a year or two so that the student can take advantage of the overall savings," he said.
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Learn more about loans and scholarships.
Students who cannot begin paying the money back within 90 days still can borrow through the two programs that defer payments until six months after graduation or withdrawal from college. Those offer $5,000 a year at 5-percent interest for students at any college or university. Students at a United Methodist-related college or university can borrow at a 4-percent interest rate.
Under the 5-percent option, the payment is $65 a month, 120 payments, for a total principal repayment of $8,624.42. The 4-percent option is a $60 payment with the total principal repaid of $7,900.58.
The savings to the student under the BorrowSmart program would be more than $1,700 a year on a $5,000 loan compared with the 5-percent loan option. Students who borrow at the maximum of $5,000 a year for four years would pay back $6,807 less in the BorrowSmart program.
The Board of Higher Education and Ministry loans about $2 million to United Methodist students each year and awards about $3 million in scholarships annually.
Earnings from the loan funds pay the operational expenses for the Office of Loans and Scholarships. Loan earnings are reinvested into new loans, and some excess loan earnings have been used for scholarships in prior years.
*Brown is associate editor and writer, Office of Interpretation, United Methodist Board of Higher Education and Ministry.
News media contact, Joey Butler, Nashville, Tenn. (615)-742-5470 or [email protected].
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