A common denominator among most college students?
National research from The Institute for College Access & Success shows that about two in three (65 percent) four-year students who graduated from public and private nonprofit colleges in 2017 had student loan debt.
The average per borrower was $28,650 and ranged from $18,850 in Utah to $38,500 in Connecticut, according to TICAS’ Project on Student Debt.
These figures are enough to send a shiver down your spine and perhaps have you second-guessing whether you want to take out a student loan.
Before you sign your name on the dotted line, there are a number of things to take into consideration. Victoria O’Brien, financial aid counselor at Ohio State Mansfield, and Greg Emmons, certified financial planner and investment advisor representative with Lighthouse Wealth Management, Inc. in Ashland, can help get you started. See their 10 tips below.
1. Exhaust other types of financial aid first.
A common misconception is that student loans are the only way to afford a college education, but there are other viable options, O’Brien said.
Grants and scholarships, for example, can help cover the cost. Sources for these funds include the federal and state government, colleges or career schools and private or nonprofit organizations.
See what scholarships are available by contacting the financial aid office at the school you plan to attend. High school guidance counselors can also help with your hunt.
“It’s kind of one of those things where you really have to dig a little bit,” O’Brien said.
2. You (the student) are the borrower and do not need a parent to cosign on loans from the federal government (Free Application for Federal Student Aid). You are responsible for repayment.
“If you’re looking to get a loan at a bank when you’re 18, you’re probably going to need a cosigner, but if you are borrowing from the federal government for student loans, you are the one that’s signing it. You are responsible for repaying that loan,” O’Brien said.
That means it’s your credit that’s attached to those loans.
3. There are limits to how much you can borrow each year and how much you can borrow over a lifetime for federal/FAFSA loans.
“This doesn’t come up too often with first-year students, but maybe someone who’s returning to school after taking some time off or transferring schools,” O’Brien said.
“Some students ask about borrowing for the entire balance, and you could if you go to a bank or something, but you’ll probably have a huge interest rate,” she said.
Federal loans have lifetime limits. For example, the lifetime loan limit for a dependent student (typically a student fresh out of high school) is about $31,000.
“Of course you hear stories of students who have much higher loan balances — that’s because they’ve gone and taken out loans from other sources,” O’Brien said.
4. It isn’t “all or nothing”—you can accept a portion of the loans a school offers you. You don’t have to take the full amount.
Say you’re offered a couple thousand dollars in loans but only need a couple hundred dollars to cover the gap. O’Brien recommends contacting your school’s financial aid office to learn what their procedure is on accepting a portion of funds.
“Similarly, your school might not offer you your maximum loan eligibility — they might only offer you a small portion — but maybe you need a little bit extra to pay for living expenses or books,” she said. “That’s another opportunity to speak with your financial aid office and see what is out there.”
5. Know what kind of loan it is that you want to take out (subsidized versus unsubsidized) and what it requires of the borrower.
“(Student loans) do get a bad reputation, and I’ve heard many scary stories in my work, at conferences and in speaking with students about people who get loans they can never repay, but for many students, loans can be helpful and they can really make that difference in their journey to obtain a degree,” O’Brien said. “I know for myself I would not have been able to get my bachelor’s degree without the assistance of student loans.”
The thing is, it’s important to make good decisions when it comes to borrowing. And good decisions require good information.
“Before you sign up for a student loan, know what the interest rate is, know when you have to start repaying it, and get more information before you sign on that dotted line,” O’Brien advised.
Do you know the difference between subsidized and unsubsidized loans?
“They’re the same in every way except that the subsidized loan does not accrue interest while you’re in school. The interest is subsidized, or paid by the federal government. The unsubsidized loan does accrue interest as soon as it disburses to your account,” O’Brien said.
They’re both the same in that you do not have to start making payments on those loans until six months after you graduate or stop attending college.
6. Understand the grace period and when your first payment is due.
“This can give you some time to construct a budget and help you calculate how long it will take you to repay the loan,” Emmons said.
If you drop below half-time enrollment, your grace period is going to kick in. Your loan servicer will receive notification of this and should reach out to you letting you know the countdown clock is about to tick.
“At that point, you would want to reach out to your loan servicer and discuss your options,” O’Brien said. These can differ depending on your situation, such as military deployment or financial hardship.
But just because you’re no longer in school, that doesn’t mean the loan disappears.
“It’s one of those things where if you ignore it and pretend that it’s not there, you’re only going to hurt yourself in the long run,” she said.
Your credit score will take a hit, for one thing.
“If you go into default, that’s very bad for your credit and it does follow you,” O’Brien said. “And if you declare bankruptcy, that does not impact your student loans.
“The only way to completely get rid of your loans is through loan forgiveness and also through permanent disability or death. But I will say that permanent disability is a very difficult status to establish. I have seen it, but it’s pretty rare.”
7. Keep tabs on what you owe—check your balance on studentaid.ed.gov.
This is a personal tip shared by O’Brien, who was a first-generation college student.
“I was very overwhelmed by the financial aid process and I made some less than great decisions in regard to my finances, and one of those decisions was not thinking about how much I was borrowing,” she said.
“My school that I went to required an exit interview before you graduated and one of the things that happened during that was you reviewed your loan balances. That was the first time I had thought about that number in four years. It was truly one of the most shocking and stressful conversations in my life.”
Looking back, it would have been much less frightening had she kept up on what she was borrowing, she said.
“I would have been able to strategize a bit better,” she said.
8. Make interest payments while you are in school, if you can.
If you have an unsubsidized student loan, you can make payments on the interest.
You can also make payments on a subsidized loan while in school.
“Some students don’t need to borrow. Maybe they’ve got money in savings, but they take out the loans anyway and then they just pay them off really quickly so they can build up their credit because student loans do help you build your credit score,” O’Brien said.
9. Don’t be unnecessarily aggressive in reducing student loan debt.
The current fixed interest rate for undergraduate loans is 5.05 percent, according to the Federal Student Aid website.
That being said, Emmons suggests, “I wouldn’t overly stretch myself to pay the loan down as fast as I could. I think it’s extremely important young people start to save for their retirement — as long as they can afford to — especially if they are enrolled in a 401(k).”
10. Explore repayment and loan forgiveness options before you graduate.
“I think a lot of students have the mentality of ‘I’ll graduate, get a job in my field and I’ll pay off my loans.’ But real life can sometimes be a bit more complicated or messy and it doesn’t always work out that way,” O’Brien said.
Reach out to your loan servicer, which sets the terms for repayment, and see what options fit your situation. Do you want to make a bigger payment each month over a shorter period of time, or make smaller payments over a longer period of time? Students in graduate school, the military or significant financial hardship, for example, may have their payments deferred or significantly reduced.
There are also programs that will forgive or erase a portion of loan debt depending on your job and what field you’re working in. One of the most common is the Public Service Loan Forgiveness Program.
O’Brien cautioned, “Make sure you read the fine print. I really encourage students to be careful and cautious. Those type of programs have really strict requirements and specific situations they apply to. Another thing to keep in mind is that these types of programs are often closely tied with Congress which means they can be adjusted or eliminated depending on politics.”