College Planning Center of Rhode Island
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College Planning & Financial Aid Advice

Figuring Out How Much to Borrow for College

Posted by Lindie Johnson

Jul 28, 2014 4:00:00 PM

The cost of college tuition has taken a drastic turn upwards in the past few decades, increasing the amount that most students will have to borrow for college. While there is nothing wrong with taking on some student loan debt as long as it is done responsibly, it is important to be aware of how much you will be making straight out of college, and how much per month you will be paying back on your student loans.

What are your career plans? 

If you do not know exactly what you want to major in or pursue as a career your first year of college, it might be best to err on the side of caution and not take out too much in the way of loans to begin with, especially if you have any reason to believe you may go into a field that typically pays lower wages. General education classes your first year is a great way to feel out what you like and what you don't like, hopefully leading you to make a decision about what you'd like to major in by your second year.

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Once you have an idea of what you'd like to do after college, and what you want your major to be, you can start taking a look at some hard numbers to help determine how much you will need to borrow in order to pay your tuition and graduate. Professions that have higher starting salaries can allow you to borrow more money in order to get your degree as opposed to those with smaller starting salaries.

As a general rule, you probably don't want to borrow any more than 90-100% of what your expected starting salary will be once you graduate. By keeping your total amount of money that you will borrow for college under this number, you are keeping your monthly payments low enough that you should be able to afford them on your salary. The payments will be even easier to make the longer you are out of college since you will hopefully be getting promotions and raises which will make the percentage of each paycheck going towards student loan repayments smaller.

If you do have an idea what you'd like to do as soon as you start school, great! Knowing an approximate starting salary for your desired job will help you make a decision about student loans before you even step foot in the classroom (Calculate your earnings and max borrowing for all years here). When you know what your starting salary should be before starting, you can borrow for college keeping that number in the back of your head. 

In addition to tuition, you will also want to be able to have enough money for room and board, which can sometimes come close to the amount of tuition you pay directly to the school every year. On-campus living can be surprisingly expensive, with your dorm room being pretty comparable in price to an off-campus apartment, and your dining plan will probably not be cheap either. Moving off campus and preparing your own meals may save you a little bit of money, but you will then have increased living expenses in the form of utilities and transportation to campus.

While the majority of students should be able to get under the 90-100% borrowing suggestion, you can help yourself out by getting even a part time job or paid internship during you first year or two of college. This will reduce the amount of money you need to borrow for college, and give you valuable work experience that could help you land a job in the future.

Anyone going into, or already in college, should do some research into how much they can expect to make their first year. This is the best baseline to work with to determine how much you should be borrowing for college, and it can help give you a realistic estimate of what you need to do to become financially secure after you graduate. Start your research here

Topics: student loans, borrowing for college

Discerning Differences: Private Student Loans, Federal Student Loans and State-based Student Loans

Posted by Lindie Johnson

Jun 17, 2014 2:03:27 PM

If you are looking to borrow for college, you may have heard about federal, private, and state-based student loans. But what is the difference between these loan types and which ones are the right ones for you and your family? 

Federal Student Loans

There are several types of federal education loans that can help your family pay for college. Federal education loans fall into two categories: student loans and parent loans.

Federal Student Loans

When you borrow a federal loan, your lender is the US Department of Education. Students are advised to use up their Federal Subsidized and Unsubsidized Loans (also offen referred to as "Stafford" loans) before seeking a loan elsewhere. These loans carry a low fixed interest rate (currently, they are set at 4.66% for undergrads) and have an array of flexible repayment options to help new grads afford their monthly loan payments - or delay their payments, if necessary. To apply for one of these loans or for the Federal Perkins Loan, another low fixed rate federal student loan which is awarded through the school financial aid office, you must submit the Free Application for Federal Student Aid. LoanApplication_iStock_000019962865Small

Federal Parent Loans

There is also a federal college loan option for parents, called the Federal PLUS Loan. These loans do offer some repayment flexibility and deferment options although not quite as much as the Stafford or Perkins loans, but they also carry a higher interest rate than the federal student loan options.

Currently, the Federal PLUS Loan rate is set at 7.21% with a 4.288% origination fee.  

You can get more information on federal education loan programs at https://studentaid.ed.gov/types/loans.

State-based Student Loans

State-based student loans vary from lender to lender depending on the state in which you are borrowing. Not all states have a state-based student loan program, but these programs are typically available to students who are either a resident of the state or are going to a school in the state. These loans are often offered with low fixed interest rates and low or no fees. They are worth looking into if you think your student will need to borrow beyond the federal Stafford and Perkins loan limits.

Are you a resident of or going to school in one of the below Northeastern states? Check out the state-based student loan options. 

Private Student Loans

Private student loans are another alternative to the federal PLUS loans. Private student loans usually offer credit-based pricing and variable rates which means you don't necessarily know what rate you will pay on your loan until you apply. Variable rate loans may seem enticing right now as markets rates hover at historical lows. But you must assess whether or not you will be able to afford a higher monthly payment if rates increase prior to paying off your loan. Most variable rate loans are based off of Prime or LIBOR. Clicking these links will show you how Prime and LIBOR have changed over time.   

Fixed rate private loan programs are more rare and typically also have credit-based pricing. Unless you have some of the best credit out there, keep in mind you may not qualify for that lowest advertised rate. 

Comparing Student Loans

College is an enormous financial commitment, and loans can no doubt add to your costs. Before borrowing, make sure you have completed the FAFSA and fully explored your eligibility for grants and scholarships. Also, pay what you can from your salary and savings before taking on any debt. 

If you do decide you need to borrow, make sure you understand how much the loan will really cost you. What you repay is not only the amount you borrow, but also interest and fees. If you borrow a state-based or private student loan, you will receive a set of disclosures at the time of application that will give you information on all rates, fees and will display the total cost of the loan. Federal student loans are not subject to the same disclosure requirements but you can get an idea of your total costs by comparing rates and fees, as well as looking at your final loan disclosures. Also be sure to understand all of the loan benefits, from deferment to income-based repayment, to loan forgivenss before committing to any loan. 

Topics: student loans

How to compare college loan options

Posted by Lindie Johnson

Apr 23, 2014 11:00:00 AM

College is expensive and comparing college loans can be a bit tricky, especially when you're just getting started. That's why students and parents need to carefully consider their funding options based on crucial factors such as total cost, future earnings and ability to pay. 

While the process can be stressful, a little bit of planning and patience will help you find a financial program that works best for you and your child's situation. And it all starts with a thorough research on comparing college loan options.

Here are a few planning tips you might want to consider:

Learn about federal education loans.pricetag

Student loans issued by the federal government, such as the Federal Stafford Loan and Federal Perkins Loan, have low fixed rates and low fees, in addition to having the most liberal repayment flexibility. The Federal Stafford Loan should be a student's first option for borrowing.  

Perkins loans are available to financially needy graduates and undergraduates. These loans are directly provided by the college or university and if your family qualifies, it will be included in your financial aid award letter.

Federal PLUS Loans are in the parent name only, meaning the student has no obligation to repay this debt. The rates on these loans, which are set annually (but are fixed for the term of your loan) are not as low as those on the Stafford or Perkins loans and these loans do not offer as many repayment benefits as the Stafford or Perkins loan. 

Explore your state-based loans options.

State-based loans, such a those made by RISLA, are another alternative. State-based loans are available to residents of the state where the agency serves or to students from other states who come to the state to study.

For example, if someone from Connecticut goes to Rhode Island to enroll to one of the colleges and universities there, he or she may be eligible to apply for RISLA's state-based loans. The same is true for students who live in Providence, RI, whether they enroll in a school in or outside the state.

State-based loans are different from both private and federal student loans in a lot of ways. For one, unlike most private loans, state-based loans typically offer fixed rates. State-based loans also often offer better rates than those on even the Federal PLUS loan. 

Talk to a non-profit, state-affiliated lender if you're interested in exploring your child's state-based college loan options. 

Consider private loans.

If you are unable to exhaust your federal or state-based loans options, or if you need additional loans, then you may consider shopping for private loans. Check with your trusted bank or other financial institutions.

While private loans usually have higher interest rates than federal and state-based loans and often offer variable rather than fixed rates, they are typically better than credit cards.

Pay attention to terms, rates and fees. Compare and save. 

When shopping for a college loan, you need to pay attention to specific disclosures. Here's a quick overview of the crucial details you should look into.

Interest rates 

College loan interest rates vary. It's one of the most important factors to consider when shopping for college loan options.

Education loans come with two types of interest rate: fixed and variable. Fixed rates remain stable for the life of the loan, while variable rates fluctuate depending on economic conditions. Right now, variable rates are at historic lows, so it's very possible they will increase before your loan is paid in full if you take on a varible rate loan. If a rate on a variable rate increases, so does your monthly payment. 

Annual Percentage Rate (APR)

Other things being equal, you'll want to get the lowest possible APR. It takes into account the interest rate and other fees assessed on your loan.

Repayment terms

The term refers to the amount of years borrowers are expected to repay their loans. Banks usually offer 5, 10, 15, and 20 years of repayment terms.  It's best to decide on how much you can afford to pay. A 5-year repayment term, for instance, will accrue a lesser amount of interest (and sometimes comes with a lower interest rate) than a 10-year term—but your monthly payments will likely be higher.

Monthly payments

Before borrowing any loan, it is important to understand what your monthly payment will be and ensure that it will be affordable for whoever has agreed to repay the loan. 

Fees

Check for other fees that may significantly increase the total amount you need to repay. It's easy to overlook these fees. Be sure to consider returned check fees, administration fees, late payment fees, origination fees, repayment fees, and other fees.

Benefits & protections

What benefits does the loan offer? Do you get an interest rate discount for making automatic monthly payment by debit? Are there any reward programs available? Also, what protections are in place on the loan? What are the deferment and forbearance options? Are there extended or income-based repayment plans? What happens if the student or parent becomes deceased? It is important to know what happens if you land in an unfortunate and unexpected situation. Consider the answers to these questions when you are determining the overall best loans for your family. 
 
 

Topics: student loans, student borrowing, student debt, student loan, student lending, education loans, private loans, college loan, education loan, private student loans

Student Loans: 5 loans you should know about

Posted by Lindie Johnson

Aug 21, 2013 11:32:00 AM

If you are like 70% of students out there, you may need to borrow for college.

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 Check out these top options for students and parents and remember, limit the amount you borrow as much as possible! 

1. The Federal Stafford Loan. This is the best borrowing option for students. Stafford loans come in two varieties. Subsidized loans offer interest paid by the government while the student is in school. This type is only available to undergraduate students whose families prove financial need. Students are responsible for paying all interest on unsubsidized loans. Unsubsidized loans are available to both undergraduate and graduate students. New this year, the rates on these loans are set annually and are fixed for the life of the life. Undergraduate students will receive a rate of 3.86% for the 2013/14 academic year, regardless of whether the loan is subsidized or unsubsidized. (Compared to 3.4% for subsidized loans and 6.8% for unsubsidized loans for the 2012/13 academic year). Graduate students will get a rate of 5.41% this year, compared to 6.8% last year. All options have a 1.051% default fee which is deducted from the total amount sent to the school. To be eligible for a Federal Stafford Loan, a student must complete a FAFSA. Extensive deferment and forbearance options are available. While these loans offer the best rates and most flexibility for students, there are borrowing limits (see below) so often times, families need to look beyond the Federal Stafford Loan to meet their borrowing needs. 

Annual Federal Stafford Loan Limits:  
 
Dependent Students
Independent Students
Year in School
Subsidized Limit
Total Limit
Subsidized Limit
Total Limit
First
$3,500
$5,500
$3,500
$9,500
Second
$4,500
$6,500
$4,500
$10,500
Third– Fifth
$5,500
$7,500
$5,500
$12,500
Grad Students
N/A
N/A
N/A
$20,500

2. Federal Perkins Loan. Many fewer students qualify for a Federal Perkins Loan than a Federal Stafford Loan. These loans are awarded based on financial need and are only available at schools that have a funds for the Perkins program. You must apply for financial aid and complete the FAFSA to be considered for a Perkins loan. If you qualify and the school awards you one, it will be included in your financial aid award letter. You may be awarded up to $5,500 a year if you are an undergraduate and $8,000 a year if you are graduate student. The standard repayment term on a Perkins loan is 10 years and they offer a low fixed rate of 5%. Many deferment and forbearance options are available on Perkins loans. 

3. RISLA Student Loan. The RISLA Student Loan is a fixed rate state-based loan. This loan is available to Rhode Island residents, no matter where the student chooses to attend school, and to any student from outside of Rhode Island that attends an eligible college or university in the State of Rhode Island. The RISLA Student Loan comes in two different repayment options. The immediate repayment option is the best deal and offers a low fixed rate of 5.39% (5.39% APR) and no origination fees. It has a 10 year repayment period. The deferred option has a rate of 7.49% (view APR and disclosures) and has a 4% origination fee that can be waived if the student completes a financial literacy tutorial on RISLA.com. Students who complete an eligible internship can qualify for a $2,000 loan forgiveness on their RISLA Student Loan and income based repayment is available to borrowers who land upon financial hardship. 

4. RISLA Parent Loan. Much like the RISLA Student Loan, the RISLA Parent Loan offers a low fixed rate of 5.39% and zero origination fees. However, this loan - unlike the RISLA Student Loan - is exclusively in the parent name and the student is not obligated on the debt. The standard repayment term is 10 years and the loan enters repayment after the final disbursement is sent to the school. 

5. Federal PLUS Loan. The Federal PLUS Loan offers parents and graduate students a fixed rate of 6.41% and a 4.204% origination fee. There is a deferment option on this loan that allows parents or students to delay payments until the student graduates. The standard repayment term is 10 years but repayment may be extended depending on the loan balance or if the borrower decides to consolidate the debt. Some schools include this loan in the financial aid award package but this loan is not awarded based on need. 

Before you borrow, remember to carefully compare rates and terms on education loans and be sure to fully understand your obligations. 

Topics: student loans, borrowing, student borrowing, student debt, student loan, student lending, college financing, borrow for college, paying for college

Federal Student Loan Interest Rate Changes

Posted by Lindie Johnson

Aug 2, 2013 9:06:00 AM

You may have heard in the news this week that a bill was passed to change federal student loan interest rates. Prior to July 1, 2013, the Federal Stafford Loan rate was set at 3.4% fixed for subsidized loans (loans under which the government pays the interest while the student is in school) and 6.8% for unsubsidized loans. PLUS Loans were set at a fixed rate of 7.9%. On July 1, the unsubsidized Stafford rate of 3.4% was set to increase to 6.8% if Congress did not act.

July 1 came and went and Congress was unable to reach an agreement to keep the rates at 3.4%. Meanwhile, many new bills were introduced that would change the way interest rates are set for Stafford loans and PLUS loans. This week, one of those bills (HR 1911) was passed by both the House and Senate. It's now waiting for the President's signature and is likely to be signed.

The new rates on Stafford and PLUS loans will be market based rates and retroactive effective July 1, 2013. Rates will be set annually based on the 10-year Treasury note plus a markup and will be fixed for the life of the loan. For undergraduate Stafford loans, both subsidized and unsubsidized, the markup will be 2.05%. For graduate Stafford loans, the markup is 3.6% and for PLUS loans, it's 4.6%. Interest rates would be capped at 8.25% for undergraduate students, 9.5%t for graduate students, and 10.5% for PLUS borrowers.

So what does this mean for students? The good news is that it means lower rates on Stafford this year. The bad news is that as the economy improves, rates are likely to go higher.  

Topics: student loans, borrowing, student debt, student loan, student lending, borrow for college, education financing, education loan, Direct Lending

My college borrowing story

Posted by Lindie Johnson

Mar 14, 2013 11:13:00 AM

Like most college students, I was convinced I was going to be making the big bucks after graduation. I wanted to work in advertising and to be frank, I never looked up earnings for people in that career. I pictured Hollywood's portrayal of a cool, collected and well-paid advertising executive, and I thought that would be me. I reasoned that I was attending a great school (an Ivy League school, even) and that if my starting annual salary wasn't at least as much as one year's worth of tuition, then what was the point?

As generous as my financial aid package was, it required me - and my parents - to borrow in order to afford our Expected Family Contribution. I maxed out my Stafford Loans, and for my first three years my parents met the rest of the burden by taking on PLUS loans. My fourth year, my parents and I joined up to get a state-based college loan, so I had some more investment in my education. The deal was they would make the payments on the loan until I could afford it on my own.

My last year of college, I spent a good deal of time in the Career Services office. During one particular appointment, my career advisor told me that my expectations for a starting salary in the field of advertising were grossly unrealistic. I didn't believe her. I left my appointment feeling angry, thinking I was going to proove the advisor wrong.

I didn't.

Sure enough, my first job out of college paid me more-or-less the average starting salary for an entry level job in the advertising field, and more than $20,000 less than what I unrealistically was hoping for/expecting.

Fortunately for me, I was living in a low cost city and with a few roommates, so my rent was reasonable. I graduated when student loans were still on a variable rate schedule and was able to consolidate them at the historic low rate. I chose a graduated repayment plan, that in the end would cost me much more in financing charges (and of course now I regret), but afforded me a much lower payment at the time. My parents were kind enough to continue paying on my state-based student loan until - years later - I was able to earn enough to take over the payments.

I got by but it was tough. I didn't save anything. I used my credit card when I shouldn't have, accruing even more debt. It took me years to pay off those credit cards and get back on track. It wasn't until 5 years after I consolidated my federal student loans that I even made a payment towards the principal balance, which meant every penny I paid for 60 months was just going towards interest!

I share this story as a warning that researching your career before you borrow is absolutely essential. Before you ever borrow a student loan, you should have a good handle on what you are interested in, what you can do with your skills, and how much money you will make in an entry level job in that field. This will allow you to develop a realistic picture of what your life will be like after you graduate with the debt load you plan to take on. 

To research careers and salaries, you can use the tools available on the RI Department of Labor and Training site and the federal Bureau of Labor Statistics.

When it comes to paying for college, remember to always think of ways you can limit your borrowing, including getting a part time job, making your own coffee, and eating in the dining hall instead of ordering out. Remember to live like a college student now, so you don't have to live like one after you graduate.

Topics: student loans, college loans, borrowing, student borrowing

How State-Based College Loans are Different.

Posted by Lindie Johnson

Jul 26, 2012 12:06:00 PM

College loans come in all shapes and sizes. Students should always explore their federal student loan options, including subsidized Stafford loans and Perkins loans, before turning elsewhere for borrowing for college. The subsidized Stafford loan offers the lowest rate (3.4%) and a low 1% default fee. The Perkins loan has a low rate of 5% and no fees. Awards for the Perkins loan, if available, are awarded by your school through your financial aid award letter.

Stafford loans also come in an unsubsidized option. The rate on these loans is 6.8% and borrowing limits do apply for all Stafford and Perkins loans.

So what happens if you are awarded the maximum amounts and you still need more money to pay your college bill? Searching for grants & scholarships to help fund your education, but they rarely will meet your entire need.

Your next option is a Federal PLUS loan, a private student loan or a state-based student loan. We will review how each of these options are different below.

The Federal PLUS Loan is a fixed rate loan in the parent's name (grad students can also pursue a PLUS loan). The student has no obligation on this loan, unless they make an individual agreement with their parents. The rate is 7.9% and there is a 4% fee for all borrowers. The biggest benefit of these loans is the flexible payment options. You can defer your payments while the student is in school (although this means you will end up paying a lot more in finance charges in the long run) and there are countless deferment and forbearance programs if you are in a sticky financial situation, for example, if there is a job loss or illness in the family.

State-based loans are provided through non-profit, state affiliated lenders. These loans are typically fixed rate loans and may or may not have fees. They have varying deferment and forbearance provisions, dependent upon the lender. Rhode Island Student Loan Authority, sponsor of the College Planning Center of Rhode Island, offers two repayment options. RISLA offers state-based student loansThe immediate repayment option has a low fixed rate of 6.39% and zero origination fees. The deferred repayment option has a fixed rate of 7.39% and a 0-4% orignation fee. Any borrower can qualifty for the zero origination fee on the deferred loan by taking an online financial literacy test within the year the loan is borrowed. You may also qualify if your high school offered a mandatory (and approved by RISLA) financial literacy course.

Typically, state-based loans are available to residents of the state in which the agency serves, or to students from outside of that state who come to the state to enroll in a college there. For example, if you are from New Jersey and you go to college in Rhode Island, you may qualify for RISLA's state-based loans. Likewise, if you live in Providence, RI, whether you go to school in Rhode Island, Massachusetts, or Hawaii, you can apply for this loan.

Lastly, there are private student loans. These loans are offered by banks and nationwide student lenders such as Sallie Mae and Discover. Some of these businesses offer fixed rates but most of the offerings are variable rate. In either case, most programs offer tiered pricing. Tiered pricing means the rate that you receive, whether it is on a fixed rate or variable rate product, is based on your credit score. It may be the credit score of the student, the coborrower, or some combination. Every bank determines their own criteria. When applying for a private student loan, be very aware that the advertised low rate may not be what you qualify for, unless you have outstanding credit.Also, make sure to pay attention to disclosures, terms and conditions. Deferment and forbearance options may be very limited.

Topics: student loans, college loans, student loan, college financing, college loan, private student loans

How to minimize college loan debt - Part II

Posted by Lindie Johnson

May 8, 2012 8:23:00 PM

Part I of this series encouraged students to borrow only what they need and keep their borrowing in line with their career choice. Below are some additional techniques to help students minimize the amount they borrow for college. Some of these require a lot of foresight and need to be done prior to applying for college. As with the tips in Part I, these tips may require you to make some sacrifices - but these short term compromises will have a very long term payoff.

Earn college credit while in high school.

Does your high school allow you to enroll in courses at a local college while earning your high school degree? Some high schools offer these programs, which allow you to earn both college and high school credits at the same time. This could potentially mean it will take you less time to graduate from college. If this option isn't available to you, keep in mindMinimize College Debt II many colleges also accept certain test scores on AP exams for college credit. Look into each individual college's policy. By earning credits before you enroll, it can potentially reduce the amount of time it will take to finish your degree and therefore the amount you may need to borrow.

Enroll at a community college for your first two years.

If you are planning on pursuing a bachelor's degree or higher, you may want to consider enrolling at a community college for your first two years, especially if you are unsure of what you want to study or what career you aim to pursue. Some students don't find this option as glamorous as perhaps, living in the big city, or attending the state flagship university, but community colleges provide great value. Community colleges are typically much less expensive than public or private four year schools. However, before you pursue this option, make sure you understand which credits can be transferred to other schools and which schools will accept them before you make your final decision.

Fill out the FAFSA by your school’s deadline.

In order to make sure you receive all of the financial aid you are eligible for, including federal and institutional grants (“free money”), make sure you complete your FAFSA and any other required financial aid forms by the school’s specified deadline. Missing a deadline could mean you miss out of opportunities to receive free money or cheaper loans.

Apply for scholarships.

Scholarships are not only available through your school. Private scholarships are available to just about every type of student. Local scholarships tend to be smaller but are a lot easier to get. A few scholarships can add up to pay for books and living expenses and can significantly  reduce your borrowing needs. Before you borrow, may sure you explore your free money options first. Start your search here.

Budget for a lower cost of living.

A good way to reduce the amount you need to borrow is to create a monthly budget. Be realistic. Remember to live like a college student now, so you don't have to after you graduate.

Spend responsibly.

A slice of pizza here, cup of coffee there? How can this really make an impact on your borrowing? Take a look at the chart below.

         

Item

Frequency

Cost Per
Unit

Monthly
Cost

Annual
Cost

Coffee

5 x a week

$3

$60

$720

Takeout/Pizza

4 x a month

$15

$60

$720

Cigarettes

4 packs a week

$8

$128

$1,536

Vending machine snack

3 x a week

$1

$12

$144

 

Total

$260

$3120

       

Get a part time or summer job.

Work part time during the school year and summer and use your earnings to pay for college costs, rather than spending them on clothes, gadgets or entertainment. Just remember, working part-time can be good for you, but working full time can sometimes be too much. If you aren't able to balance your studies and job, it could mean you are unable to finish school on time and need to pay for an extra year of tuition, and borrow more. Try not to work more than 10-25 hours a week if you are full time student.

Be wise with your credit cards.

Practicing responsibility and discipline with credit cards from the start is vital to establishing good credit and avoiding a heavy debt load post-graduation. Never use your credit card if you don't think you can pay off the balance quickly. Your credit card is not an additional source of income! This is one of the most important things to remember when you are in college. You may think putting spring break on your card is a good idea now, but when you ending paying back $4,000 instead of $2,000 after credit card interest, you may think again. Only use your credit card when necessary and pay your entire credit card balance off each month to avoid interest charges. Learn more about being smart with your credit card.

Topics: college preparation, college financial aid, student loans, college loans, student debt, student loan, student lending, college bills

Don't "Get it Over With" When Signing for College Loans

Posted by Lindie Johnson

Feb 23, 2012 11:21:00 AM

Have you found that when it comes to paying for college, you just want to "get it over with?" While this may seem like a good idea at the time - quickly coming up with a method for paying the tuition bill before it is due - you may regret it later. Explore your options before signing on college loans.

The trouble is "getting it over with" sometimes leads us to make decisions that aren't always best for our family. When confronted with a $13,000 loan application that can help a student go to their dream college, it seems like everything is at stake. Why not just sign it, send it off to the school and make sure your tuition is paid? The reason is because there may be better options for your family that could save you thousands in the long run.

Rarely have we heard of a student or parent who isn't ready to get over with paying off their college loans. Some of those students and parents, unfortunately, could have been finished paying their debts earlier if they had put a little more effort into exploring the various options available, and making sure those options offered the rates, terms and flexibility that was right for their individual situation.

As the time comes to pay your tuition bill, remember that a little extra work now could save you a lot of money in the future, so rather than "getting it over with" when signing your college loan applications, make sure you know what else is available to you and if that option - or just finding a way to borrower less - could save you some cash.

A few important things to remember when borrowing for college:

  • Subsidized federal student loans are a great place to start when you have exhausted your grant and scholarships options and determined how much of your resources you can put into the college bill. The federal Stafford and Perkins loans both offer subsidized options and a lot of flexibility. The Perkins loan has a rate of 5%. The Stafford loan has a rate of 6.8% for the 2012/13 academic year. On a subsidized loan, the government covers your interest while the student is in school at least half-time.
  • Stafford loans also come in an unsubsidized option. Make sure you understand which you have been awarded in your financial aid award letters. You may be awarded a portion of both.
  • Stafford and Perkins loans have annual borrowing limits and few families find that these limits are enough to cover their entire college costs.
  • If you need additional loans, look into state-based student loans (Rhode Island offers one with a rate of 6.39%), the federal PLUS loan (offered through the US Dept of Ed and has a rate of 7.9%), and if you must, explore private student loans (typically variable rate loans based on an index plus a markup based on your credit.)
  • Remember, if you seek a private student loan with a variable rate, keep in mind rates are very low right now. When rates increase, so will your monthly payments. 

Topics: student loans, college loans, paying for college, loans for college

How much should I borrow for college?

Posted by Lindie Johnson

Feb 17, 2012 11:37:00 AM

As of 2010, the average American student borrowed more than $23,000 while obtaining a four year degree. Even at a low interest rate of 5 percent, you'd have to pay $244 per month for 10 years to erase those student loans. However, the question of exactly how much is okay to borrow for college is less dependent the amount of debt you may rack up, but more about how much money you'll make once you graduate.

Research Your Career

Deciding your future career goals is one way to explore the approximate amount of money you'll make once you graduate. Visit the Bureau of Labor Statistics and peruse various dont rush to borrow for collegeoccupations you're interested in making your career. They detail current average salary ranges for many different occupations. For example, racking up $50,000 might seem like a lot of debt, however, lawyers make a mean salary of about $129,000 per year. Conversely, racking up that same amount might prove prohibitive for a tax preparer who only has a mean salary of $37,000 per year. 

Determine Future Needs

Since paying for student loans does not generally begin until after you've received your degree, many students do not take into account the future impact of having to pay those loans in correlation with other life expenses. For example, if you plan on moving to a major city after college, the cost of housing will be higher than if you live at home for a period of time. Aside from housing, take into account the cost of transportation, utilities, insurance and healthcare. The less amount of money you need to dedicate to those categories, the more you may be able to take in student loans. Create your budget here.

Take Only What You Need

The conventional wisdom regarding student loans is to borrow only what you need to complete your degree. For example, if you receive graduation gifts from family members or have a job, these monies should be used to pay for school related expenses first. Additional money should not be taken just to be stored in your bank account to use for recreational activities. Estimate your student loan payments.

All Loans Are Not Equal

Seek out federally subsidized loans such as Perkins or Stafford loans before taking loans from other sources such as high interest credit cards. State-based student loans can also over low interest rate and little or no orignation fees. Keep in mind variable rate loans don't have fixed monthly payments so the estimate you receive now won't necessarily be what you pay each month by the time you graudate.

Topics: federal student aid, college financial aid, student loans, student loan, college financing, how much should I borrow for college?