As your child prepares to go off to college and you are considering applying for a student loan, what do you need to know in order to offer them advice as they get ready to head to college? Let’s take a closer look.
Shop around for a loan
Don’t take the first loan you’re offered. Going to college deserves your full attention and if you have to fund it with loans, make sure you’re getting the best rates. Federal loans are most widely accessible through colleges and universities.
Don’t discount your local bank
If you have a good reputation with a local bank, you may be able to secure a lower interest rate than the federal government offers, but local banks probably won’t be able to offer deferred interest, so you’ll have to compare interest rates and weigh the pros and cons to find the best plan of action with your student. However, note that private loans are historically worse for students because many require immediate payment, have higher interest rates and offer less flexible repayment terms.
Pay attention to entrance counseling
At a minimum, loan entrance counseling will explain the benefits and consequences and what’s expected during repayment. Don’t complete entrance counseling until you understand everything about the loans. If a section of the counseling doesn’t make sense, speak with the lender or put in a call to the school’s financial aid office and ask for an explanation of the concept.
Take out as little as possible
Take out as much money as needed — but no more. Summer jobs and part-time work during the school year can pick up the slack. Put information in a loan calculator to find out how much money you will be paying in interest charges in the long run. That should inspire you to be as frugal as possible.
Research repayment options
Many careers offer loan repayment assistance, including teaching in underserved areas and joining the military. Find out whether repayment assistance will apply to private as well as federal loans. Sometimes, signing a two- or five-year contract will help in receiving the benefit.
Student loans can help students follow their dreams, but be wise about how much is taken out. Now, suppose you’re on the other side and you’re dealing with an amount to pay back that seems overwhelming. It felt like free money when you were taking it out, and so you used the student loan to live way beyond your means.
The loan may be in deferment but still racking up interest. Remember to understand your loan — know the terms and details of your loan and whether it’s eligible for an income-based repayment plan or for an economic hardship or unemployment deferment. Most of all, stay in touch with your college’s financial aid department — they can be a great resource.