The six-month mark is up for many college graduates, meaning grace period is over and it’s time to start paying off student loans. For others, this time of year represents a clean slate—no loans taken out just yet; however, with the onset of a new semester nearing, that entails signing up for a commitment that could last several years.
While taking out student loans isn’t the ideal situation, financial advisors encourage students not to fret; there are resources available to better understand how to manage student loans.
“Student loans are like any other loan—home loans or car loans—they’re a good source of money if you need it, but you shouldn’t borrow more than what you need,” stated North Central State College (NCSC) Financial Aid Director Jim Phinney.
He boiled it down, describing that there are basically two types of loans: those provided by the government and those provided by private institutions. The vast majority of students, he said, take out federal loans. With private loans, students typically rely on these funds when Free Application for Federal Student Aid (FAFSA) limits their federal loans to an amount they don’t feel is adequate to pay for school costs.
And private loans, Phinney clarified, are not regulated by the government and so they do not maintain the same type of restrictions as federal loans.
The government establishes a limit of $31,500 on federal loans that can by borrowed by a dependent undergraduate student, said Ohio State University at Mansfield (OSU-Mansfield) Financial Aid Director Deb Tabor. If pursuing a master’s degree, the student can raise that total an extra $107,000 to pay for school—thus the reason why some students walk away from college with over $100,000 in debt.
According to the Project on Student Debt, the national average of student loan debt amounted to $29,400 per borrower last year. Seven in 10 college seniors (71 percent) graduated in debt.
Ohio’s average wasn’t far off the national, coming in at $29,037, which was the ninth highest average in the nation. The proportion of students with debt totaled to 69 percent, the sixth highest percentage in the nation.
So, at this point, some may be thinking, ‘Yeah, yeah, don’t remind me about my debt.’
However, “It’s important that students recognize that if they don’t pay off their loans, they’re going to have problems,” said Phinney.
Grace period ends when a person is not considered a fulltime student anymore. And then fun of paying loan(s) off commences.
Prior to that point, hopefully, students should have knowledge of what they’re getting themselves into.
“When students take out loans, they have to complete entrance counseling and a Master Promissory Note,” said Tabor. However students often neglect to thoroughly read what is outlined in the entrance counseling and Master Promissory Note, she said.
The entrance counseling and Master Promissory Note, she said, “Go into detail and make you put in numbers according to your future career and what you think you’ll make. So, say if you borrow $31,500, they give you an estimate of your monthly payments based on your income.”
So before receiving that first bill, students should already have an understanding of how they will manage their loans.
“If you have loans watch your spending. Don’t buy a lot of ‘I-wants.’ If you can pay more on your loan, that will help reduce the amount of interest that you have to pay, which will help a lot,” said Tabor.
She added, “If you get in trouble when you get out of school and don’t get a job right away and your income is nowhere near what you thought it would be, there are payment plan options that you can choose from,” said Tabor.
And above all, both Tabor and Phinney advised students to keep in close contact with their loan servicers.
“Contact your servicer. If you have problems paying, don’t just not pay because if nothing else, they can you offer you the option of a different payment plan. But you want to make sure you contact that servicer because once you go into default, they can take your tax returns, it will hurt your credit score, and it’s just a big mess,” Tabor said.
For additional resources, visit http://www.finaid.org/, http://studentaid.ed.gov/ or https://studentloans.gov/myDirectLoan/index.action.
“If you have loans watch your spending. Don’t buy a lot of ‘I-wants.’ If you can pay more on your loan, that will help reduce the amount of interest that you have to pay, which will help a lot,” said Deb Tabor.
