5 Tips for Student Loan Applicants
It’s difficult today to pick up a newspaper without reading an article on student loan debt.
Why would anyone in their right mind want to enter the world of student loan debt? On the other hand, if you need assistance covering your expenses while pursuing your education, then this is a wise use of federal student loans.
The bottom line is: get your credential, earn your degree. Just be smart about how to proceed. Here are a few tips to help you through the process.
Borrow Only What You Need
So many times I have seen students who take the maximum amount of loans available to them semester after semester. The occupational website O*Net OnLine allows you to look up your anticipated career, identify the education necessary for that career and the mean national salary you could expect. Next, visit FinAid.org to use a student loan calculator to input your anticipated annual salary and it will tell you how much in student loans you can safely borrow and reasonably repay. This exercise will help you recognize your limits.
Control What You Borrow
Even though you have determined that you can safely borrow X dollars of federal student loans and successfully pay them back, borrowing still should be considered the last resort.
If a student is not sure how much to borrow, I usually work with them to identify a safe amount and suggest that they borrow this amount. I tell them that if they run out of gas in the middle of the semester, we can apply for more, if necessary. This is much better than taking out too much at the start and ending up with money left over at the end of the semester.
Use outside scholarship applications or work study jobs to supplement the money you have to use toward your expenses. Take out the subsidized loans first (interest free while you are in school) and only the unsubsidized type (interest bearing) if absolutely necessary.
What do you do if you find you have to borrow too much to pay for your tuition, books, meal plan and dorm room? Shop wisely. If you are not eating three meals a day in the cafeteria, consider a reduced meal plan. Move out of an expensive dorm and into a moderate one. Buy used books or rent. All these are strategies to control costs.
Understand Types of Loans
Student loans are available to students in two forms, subsidized and unsubsidized.
For subsidized loans, our pals in Washington pay the interest for you on your student loan while you are in school. If you borrow $1,000 as a freshman, when you graduate four years later, you will owe only on the principle, $1,000.
For an unsubsidized student loan, the interest begins to accrue when you receive the funds. When you graduate and that loan goes into repayment, you will owe on the principle of $1,000 plus the interest that has accrued over four years, and capitalized over the four years. This mean you will be paying interest from the interest.
Student Loans vs. Parent Loans
Stafford loans are your student loans and stay in deferment while you are in school (in other words, you don’t have to pay on them while in school) and currently have an interest rate of 4.29 percent for undergraduates.
Parent Plus loans are just what they sound like. These are federal loans your parents can apply for to help you with your college expenses. They are your parents’ debt, not yours, and repayment begins immediately after you receive the funds. The interest is also significantly higher, at 7.21 percent. Use these only when absolutely necessary.
Get to Know Your Loan Servicer
When it is time to begin repaying your loans, you will do business with a loan servicer. A good resource for information on your federal student loans is the National Student Loan Data Service. This will tell you about balances, interest rates and who your servicer is.
Your servicer can help you when your loans go into repayment after you graduate. There are many different repayment plans, including a graduated repayment plan, pay-as-you-earn, income-based income contingent, income sensitive, loan forbearance, and standard repayment terms. One of these will fit your situation perfectly. There is a lot of information on each of these programs available online to help you make knowledgeable decisions.
Still have questions? Add them in the comments below.