Whether you are a graduating high school senior or a graduating college senior, student loans are most likely on the top of your mind. This complex and confusing process often leaves students, parents and guardians at a loss and can lead them to regret certain decisions later on.
According to data compiled by the Consumer Financial Protection Bureau, the total amount of outstanding student loans are nearing $1.2 trillion, with over $165 billion in the form of private loans (not federally funded loans). The Project on Student Debt also reports that nearly 66% of 2011 college graduates carry an average debt load of $26,000. In addition, over 33% average $12,550 in private loans.
As more individuals opt to pursue a college education, student loan repayment has become an increasingly important issue. Getting a college education is a high priority and student loans, public and private, are often the only means to finance it. Before signing on the dotted line, make sure you understand the reality of the financial responsibilities you are taking on and how these decisions will impact your personal and professional life in the future. Here are some tips to help make the best possible decisions with payment for higher education:
It’s never too early (or too late) to look for free money - Start looking at grants and scholarships as early as possible to avoid paying back loans. Websites such as collegescholarship.org, fastweb.com, and studentscholarshipsearch.com, provide information on scholarships and grants by category as well as how to apply for them.
Do not take on a debt load that is expected to be greater than your first year salary - This may be hard to forecast because you may not be able to predict what your starting salary will be upon graduating from college. To get a better idea of what your expected starting salary will be, look at websites such as salary.com, payscale.com, and glassdoor.com. Then multiply the amount of your first year loan by the number of years you will be in school to see how much debt you should expect to graduate with. You should aim for your total debt to be no more than 15% of your monthly gross income. If your total student loan debt exceeds your monthly income, it will be a challenge to financially balance your lifestyle along with paying back your loans.
Read the fine print before cosigning a student loan - It’s rather easy to ignore the fine print and sign your life away, but make sure you fully understand the legal and financial responsibilities you are taking on as a cosigner. If the main borrower is not able to pay, the creditor will look to the cosigner to pay. If the cosigner is unable to pay, this will impact their credit rating. Before signing the dotted line, make sure the main borrower and the cosigner are aware of their individual duties and can financially back up their future actions.
When borrowing use federal loans over private loans - Federal loans offer more flexibility and advantages over private loans when it comes to terms of payment. Federal loans offer fixed interest rates, which help borrowers predict monthly payments, while private loan interest rates often fluctuate overtime. Federal loans also often allow borrowers to defer their payments when they are enrolled in school or unemployed, whereas most private loans will expect repayment immediately. In addition, with federal loans, a cosigner will not be required to pay back the loan if the borrower can’t. Private loans will not let cosigners off the hook that easily.
Look for ways to slash unnecessary costs - Daily college living expenses can accumulate very easily between the costs of books, housing, food, campus events, gas, among other things. Try to find used textbooks to cut down on the cost of buying books. Living at home or with roommates are great ways to cut back on living expenses. Look to cook more than dine out. Try to seek out free campus events in order to enjoy campus social life without it affecting your wallet. Also many college campuses offer free transportation through campus and town. Look for free or low cost transportation in lieu of having your own car.
Consider all these tips before filling out your FASFA form! Follow Leslie Tayne, Esq. on twitter for more tips on how to cut costs in college and beyond!