Be A Smarter Student Borrower

By Staff

Over the next few months, eager students across the country will tear open college acceptance letters announcing their options for the 2014-15 school year. They’ll also get financial aid award letters, helping to shed some light on how much college will cost.

Amid the excitement of educational possibilities, college students will need to carefully evaluate their financial aid packages and consider whether to assume educational debt.

Not every student who borrows to pay for college ends up with an insurmountable debt load. In fact, most don’t. The National Association of Student Financial Aid Administrators (NASFAA) advises these six steps to help students find a healthy amount of debt for them:

1. Determine your cost of college: College costs don’t end with tuition payments. Expenses like housing, food, textbooks, and travel quickly add up.

Before you can know how much you’ll need to borrow, you must have a realistic sense of how much college will cost. Financial aid administrators can help you to estimate additional expenses, based on students they’ve worked with in the past.

Don’t forget to factor in your time to degree. Many students don’t earn a bachelor’s degree in four years – some take six or more. Be realistic when you calculate your total price of a college degree, adding in some wiggle room in case it ultimately takes you more than four years.

2. Work your financial aid package: Once you have a grasp on the total cost of college, subtract any “gift” aid you’ve received. This could include scholarships from your institution, federal or state grants, financial help from family and friends, and awards from outside organizations you’ve pursued on your own. Any gap between your total cost of attendance and this gift aid might be the figure you’ll need to borrow each year.

Every dollar earned is one less you’ll have to borrow, so continue to apply for scholarships even after you’ve received your financial aid award letters. Keep in mind that some awards may not renew each year you’re in college, which could increase the amount you’ll need to borrow or pay out of pocket.

3. Only take what you need: In most cases, financial aid administrators must offer students the full amount of federal loans for which they’re eligible—but that doesn’t mean students are obligated to borrow that much. After you’ve estimated your total cost of college, your gift aid, and the difference between the two, work with your financial aid administrator to borrow only enough to cover any funding gap.

4. Map repayment estimates to salary projections: Some experts say that a manageable student loan payment will be 10 percent of a borrower’s take-home pay. Once you know how much you’ll need to borrow, you can use online calculators to estimate your monthly payments.

Students with clear career goals in mind can also use online resources to estimate the average salary for their intended professions. While there are no guarantees when it comes to employment, these online tools can help to greatly demystify the amount of funds you’ll have at your disposal after graduation.

5. Evaluate your loans options: Student loans broadly fall into two categories: federal and private. Students who fill out the Free Application For Federal Student Aid (FAFSA) will likely be eligible for federal student loans, which come with a host of borrower protections, repayment plan options, and, in some cases, eventual loan forgiveness. Private student loans are offered through banks, credit unions, and private lenders, and are not required to carry the same protections or repayment options.

Carefully research the interest rates, terms, and conditions of any loan you consider. Asking questions up front can help to eliminate confusion in repayment. Read more advice from NASFAA about ways to be a smart student loan consumer.

6. Routinely reevaluate your loan amounts: Track your costs through your first and second semesters in college. Do you have leftover loan dollars that did not go to vital expenses? If so, work with your financial aid administrator to lower the amount you’re borrowing. This will save you much more in the long run.