5 Student Loan Tips for Incoming College Freshmen
While a few fortunate students may get a “full ride” to the school of their dreams, most college students will be responsible for some, if not most, of the costs associated with college. In many cases, this means taking out student loans. College costs are outpacing inflation, and student debt has become a significant issue for many young people. Let’s consider how to manage student debt during and after college.
You and your parents should complete the Free Application for Federal Student Aid (FAFSA) before your first year in college. It is used to determine the federal aid, such as Pell Grants, Federal Work Study and federally guaranteed student loans for which you qualify. Many schools us the FAFSA to determine other need based financial aid they will provide. You will need to complete an updated FAFSA every spring as long as you are in school.
Understand Your Award Letter
When you are accepted by a college, university or trade school, you will typically receive an Award Letter outlining the financial aid package provided by the school. The final number may include scholarships, grants, work study and loans. Scholarships, grants and work study typically do not have to be repaid, unlike loans. Obviously, the more aid that does not have to be repaid, the better. It is important to understand that scholarships and grants often have eligibility criteria. Scholarships may require participation in a sport or activity or maintaining a minimum grade point average, while grants and work study are often based on financial need. The financial aid can change from year to year, so it is important to maintain eligibility for scholarships and grants.
Private Loans Vs. Government Guaranteed Loans
When you are considering loans, there are federally guaranteed loans and private loans through financial institutions such as Discover or Citizens Bank. Interest on federal loans does not accrue until after graduation, while interest begins accruing immediately with most private loans. Federal loans have more flexible repayment options, especially if you don’t find employment right out of school. Take federal loans before private loans if you can.
Don’t Borrow More Than You Need
Since loans can be used for a variety of education-related expenses, including living expenses, you may be tempted to borrow all that is available so that you don’t have to work while in school. If you can pay some of those expenses through other financial aid that does not have to be repaid or through employment, consider doing so. Remember that private loans begin charging interest from the time they are taken out.
Does Debt Make Sense?
When considering your college options and how to fund school, a little common sense goes a long way. If you’re going to be a school teacher, which is a noble calling but not a financially lucrative career, it may not make sense to borrow $100,000 for school. You will probably struggle to make payments, and it will almost certainly affect your financial well-being. However, if you are studying to be an engineer or an actuary, you may find it relatively painless to pay your debt if the degree you earn results in a well-paying career.
While having debt is not necessarily ideal, it is also not the end of the world. Responsibly repaying your loans can build your credit score. Having the responsibility of paying back your loans can help you learn to establish a budget and live below your means. For most of us, those are valuable life lessons. If you need guidance or help with existing loans call us at 800-249-2227 and speak with a Transformance financial counselor.