What You Need to Know Before Borrowing Money for College
A weak economy and rising tuition costs have forced student loan debt levels into the spotlight. People from all walks of life and backgrounds struggle with payments. In fact, the Federal Reserve Bank of New York reports student loan debt has even surpassed credit card debt in America.
If you need a loan to pay for college, be sure to consider these questions before you borrow money. A careful evaluation of your options and goals can help you save thousands.
What career are you planning to pursue? Consider your future salary and your ability to pay off the loan. If you’re interested in a profession with limited earning potential, it doesn’t make financial sense to take out a big loan you’ll have difficulty repaying. Start with a student loan repayment calculator to get a sense of your monthly payments once you graduate.
Are you planning to attend a private college or a state school? It’s important to consider the affordability of your education, especially since tuition is on the rise at state colleges and private universities alike. While your heart may be set on an exclusive private university, it’s critical to evaluate the benefits, costs and available options. The allure may not be worth the reality.
Have you already applied for scholarships or grants? As a general rule, exhaust scholarship and grant possibilities before applying for student loans. Your school counselor or financial aid office can provide resources. You can also find scholarship databases online, such as FastWeb.com.
Have you completed a FAFSA? Anyone heading to college should submit the Free Application for Financial Student Assistance (FAFSA). You may be surprised to learn you’re eligible for some funding, even if your family is not considered “low income.” Just be sure to complete your FASFA form on time, as there is a limited amount of student funding available.
Have you researched your federal loan options? If you need to borrow money, Perkins and Stafford loans are typically your best bet. If you need funding beyond the maximums these loans allow, graduate students and parents of undergrads can apply for a Federal PLUS. Federal loans offer fixed interest rates, flexible terms and borrower protections that aren’t usually available with private loans.
Have you done your homework? If you must turn to private funding, research the best private loans for your financial situation. Factors to consider include:
- Interest rate while you’re attending college: Is it fixed or variable? Does your credit score impact your rate?
- Rate once you graduate: Does the rate increase once you earn your degree?
- Fees: Are you on the hook for origination, late payment, repayment and application fees, etc.?
- Term of the loan
- First payment due date
- Monthly payment amount