Student loan debt has become the second highest category of consumer debt in the United States, behind mortgage loans. According to Forbes, more than 40 million borrowers in the United States owe, collectively, $1.5 trillion in student loans.
Debt of any kind is scary, but for many, student loans are the only way the dream of attending college can become a reality. That’s why it’s worth learning all you can about student loans and the role they play in the overall college financial aid package. Doing so can save you time, money and plenty of headaches down the road.
The first step in the process: Filing FAFSA
“Filing the Free Application for Federal Student Aid, or FAFSA, as early as you can is a priority, as it becomes the driver in the financial aid process,” says Jeff Pagano, Director of Financial Aid at Daemen College. “It indicates expected family contribution and determines from there how much the student will qualify for in financial aid.”
Once your Federal Pell and NYS Tuition Assistance Program (TAP) grants are determined through FAFSA and you know how much additional money you’ll need, Linda Rainforth, Associate Director of Financial Aid at Buffalo State College, recommends applying for other “free” money before turning to loans.
“There are numerous grants and scholarships available, such as New York State’s Excelsior Scholarship and institutional and external scholarships. It just requires the effort to locate them and apply,” she says. “High school guidance counselors can be a huge help, as can the Financial Aid Department at the school to which you’ve been accepted.”
Most college admissions offices typically offer-merit based or academic scholarships, as well as athletic and special-interest scholarships, and they are usually listed on the school’s website. Sean Hudson, Director of Financial Aid & Scholarships at Trocaire College, also recommends searching local opportunities.
“If a parent belongs to a union or a civic organization such as Lion’s Club, they might offer scholarships, and The Community Foundation for Greater Buffalo is one of the area’s largest scholarship providers.”
Websites such as FastWeb.com, CollegeBoard.org, CollegeNet.com and Scholarships.com are also great resources for searching scholarship opportunities.
Rainforth suggests students work during the summer and save as much money as they can to put toward college expenses.
“If you live at home while in college, that will eliminate room and meal charges, which will lower your costs considerably,” she says. “Federal work-study programs also help reduce the overall cost of college while offering valuable work experience.”
When it does come time to apply for loans, Pagano advises that students and families know the difference between federal subsidized and unsubsidized Direct Stafford loans.
“With a subsidized loan, the interest is paid by the federal government while the student is still in school, and the student won’t have to pay back that interest. With an unsubsidized loan, the student is responsible for the interest that accrues while still in school,” he says. “It’s better to take out subsidized loans, even for a lesser amount, because of the reduced interest costs.”
Other options include private loans, such as the Sallie Mae Smart Option Loan or bank loans. Check out Nerdwallet.com for a list of private loan options and current rates.
When it’s time to repay your loans
Repayment of loans begins six months after the student leaves school, whether because of graduation or any other reason.
“Repayment options have expanded,” says Aimee Murch, Director of Financial Aid at Villa Maria College. “There are pay-as-you-earn plans and forgiveness programs if you work in the public sector. There’s also the Get On Your Feet program for those planning to stay in New York State.”
And when it comes time to start repaying your loans, Murch says, “It’s important to be proactive with your loans once you’re out of school. Find a payment plan you can live with and never default on your loans, as it will have a negative impact on your credit and will make you ineligible for federal and state grants and federal loans should you decide to return to college at some point.”
Parents should involve students in the financial aid process from the beginning, because any promissory notes will be in their name and, most likely, they’ll be paying back any loans. Be proactive, ask a lot of questions and understand thoroughly exactly what you’re getting in to.
“I recommend families attend financial aid and FAFSA workshops. It’s also a good idea to speak to high school guidance counselors and, if need be, simply call up a local college financial aid office to get answers to your questions—even if your student doesn’t plan to attend that school,” says Hudson.