Student Loans: Borrow What You Need
Consider that on average every student loan dollar you borrow will be $1.50 after you repay. Sounds expensive? Well, then think about ways you can borrow less in student loans today.
Assess How Much Student Loans You Need
First, think of ways you can spend less on the musts of college costs. Can you rent textbooks for 75% less than if you bought it new? Can you live in a triple on campus to save over $1,000 vs. a single? Can you overload on credits and graduate a semester early? By getting into a how-to-save mindset, you’ll find creative ways that work for you to save on college costs. Everybody will have their own tolerance for what may work for them.
Second, consider your own financial capabilities. As a student, can you allocate 30 cents of every dollar you earn to pay for college costs? As a parent, can you budget for $500 a month now that you are not feeding and giving pocket money to your college kid? Can you rethink that $1,500 spring break trip to Costa Rica and allocate those funds to paying your spring semester tuition bill? If you allocate more of your present day income and savings toward college costs, you can limit your student debt.
Third, ponder just paying for the college direct costs with student loans and pay for indirect costs out of pocket. Most students and their families want to pay the tuition bill The reality is that the tuition bill does not just include tuition. Colleges include lab fees, course fees, activity fees, technology fees, student health insurance, contracted on campus student housing, meal plans, and more on their billing statements. College’s aid offers include a cost of attendance with indirect costs that are paid out of pocket like textbooks, transportation, personal costs, and if applicable off-campus housing and food allocations. Decide whether you can pay for only the direct costs with gift aid and student loans and pay for indirect costs out of pocket.
Take Out the Right Loan for You
Not all student loans are alike. There are federal student loans with a one-size-fits-all approach and private student loans with customized pricing based on your creditworthiness. The federal government has fixed rate loans for students and their parents through the Federal Direct Loan Program. The typical repayment is 10 years, but they offer other repayment options. Next year, the 2019-20 Federal Direct Student Loan Program will be 2.75% and charged a 1.059% loan fee. Students are limited on how much they can borrow based on their year in college between $5,500 to $7,500. Parents who meet a basic credit check can borrow the Federal Parent PLUS Loan. Federal Parent PLUS Loan will have a 5.30% and charge a 4.236% loan fee in 2012-21. Parents can borrow more than students. They can borrow up to the annual cost of attendance minus any other financial aid. The Federal Direct Loans have a bunch of great attributes like deferment, forbearance, forgiveness, and cancellation options.
Private Student Loans and Private Parent Loans offer the lowest financing options for borrowers with strong to excellent credit. Like the Federal Parent PLUS Loans, Private Student Loans and Private Parent Loans borrowers can borrow up to the annual cost of attendance minus financial aid and select repayment lengths from 5 to 20 years depending on the lender’s terms. Some lenders mimic some of the federal loan forbearance and cancellation based on death.
Students with creditworthy co-signers (typically parents) can borrow Private Student Loans with either based on fixed interest rates or variable interest rates and typically have no loan fees. For instance as of mid May 2020, College Ave Student Loans has Private Student Loans with variable interest rates by 1.74% and fixed interest rates as low as 4.64% including their auto-pay discount. You can determine if the College Ave Student Loan fits your needs with their 3-minute application with instant credit decision.
Private Parent Loans borrowers can choose from fixed interest rates or variable interest rates with no loan fees. College Ave Student Loans has Private Parent Loans with variable interest rates by 2.04% and fixed interest rates as low as 4.64% including their auto-pay discount. Find the College Ave Student Loan that fits you best with their 3-minute application with instant credit decision.
When choosing the right loan for you, weigh the pros and cons of each type based on what is important to you. Many find the lowest financing costs is most important to them. For others, loan forgiveness, cancellation, deferment, forbearance, and repayment plans are paramount.
Don’t just borrow the amount and student loans that are offered by your college in your financial aid offer. Determine the amount of student loans that makes sense to you based on your financial capabilities. Plus, understand who is borrowing, what the interest rate is, when you are going into repayments, and what loan benefits are important to you.
Colleen MacDonald Krumwiede is a financial aid and paying for college expert with over a decade of financial aid experience at Stanford GSB, Caltech, and Pomona College and another decade at educational finance and technology companies servicing higher education. She guides go-to-market strategy and product development at Quatromoney to transform the way families afford college.