Borrowing student loans is a significant financial decision that can have long-lasting implications on your student’s future. While loans can help make higher education more accessible, it’s crucial to approach borrowing with careful consideration and awareness. Before you and your student sign on the dotted line, here are several essential things to know about student loans.
Understand the Types of Loans Available
Student loans come in two primary forms: federal loans and private loans. Federal loans, provided by the government, typically offer lower interest rates and more flexible repayment options than private loans. Private loans, offered by banks or other financial institutions, may have higher interest rates and less favorable terms.
Know the Difference Between Subsidized and Unsubsidized Loans
Federal student loans are further categorized as subsidized or unsubsidized. Subsidized loans are need-based, and the government pays the interest while in school and during certain deferment periods. Unsubsidized loans accrue interest from the time they’re disbursed, and you’re responsible for all interest payments.
Familiarize Yourself with Loan Terms and Conditions:
Before accepting any loan offer, carefully review the terms and conditions. Pay attention to the interest rate, repayment options, grace period, and any fees associated with the loan. Understanding these details will help you make informed decisions and avoid surprises down the road.
Estimate Future Loan Payments
Use loan calculators or online tools to estimate your student’s future loan payments based on the amount borrowed, interest rate, and repayment term. This exercise can give you a realistic picture of what your monthly payments will be after graduation and help you plan accordingly. With this knowledge, look at potential future paychecks and determine if that’s reasonable.
Explore Federal Loan Benefits
Federal student loans offer various benefits that can ease the burden of repayment. These include income-driven repayment plans, loan forgiveness programs for eligible professions, deferment and forbearance options, and the possibility of loan consolidation. Understand how these benefits may apply to your situation.
Consider Future Earning Potential
Before taking on student loan debt, consider your student’s expected future earning potential in your chosen field of study. Will your projected income allow you to comfortably manage loan payments after graduation? Research salary data for your desired career path to gauge whether borrowing is a wise investment.
Borrow Responsibly
Only have your student borrow what they need to cover essential education expenses. Resist the temptation to borrow more than necessary, even if they’re offered additional loan funds. Remember that every dollar borrowed accrues interest, increasing the total amount you’ll need to repay over time.
Explore Alternative Funding Sources
Exhaust all other financial aid options, such as scholarships, grants, work-study programs, and savings, before turning to student loans. Every dollar your student can secure through non-loan sources reduces their future debt burden. I recently shared 10 creative ways to fund college – check them out here!
Stay Informed and Communicate with The Loan Servicer
Encourage your student to keep track of their loans, stay informed about changes in repayment terms or benefits, and communicate regularly with their loan servicer. If you or your student encounter financial difficulties, don’t hesitate to reach out and explore available options for managing your loans.
Borrowing student loans is a major decision that requires careful consideration and planning. By understanding the types of loans available, familiarizing yourself with loan terms and conditions, estimating future loan payments, exploring federal loan benefits, considering your future earning potential, borrowing responsibly, exploring alternative funding sources, and staying informed, you can make informed decisions about financing higher education while minimizing the long-term impact of student loan debt.
More about Jodi and College Financial Aid Advisors
Jodi is a FAFSA financial advisor who helps with the financial aid process to help families of college students maximize their financial aid. From completing the FAFSA and completing the CSS Profile to reviewing the SAR, responding to requests for verification, comparing financial aid offers and understanding student loan options, Jodi is a fantastic resource when it comes to student financial aid. Schedule a 15 Minute Power Chat to learn more about finding ways to pay for college.