Advice for college students
College is great but it is also expensive. It is very important for you to be fully aware of all the options you have to control costs. For many, failure to understand how student loans work can lead to significant unanticipated costs. A college degree can result in a career path that increases your lifetime earnings by as much as $1.5 million. So, loans become more attractive when viewed as an investment. Typically, a student who makes full use of student loans graduates from college with about $20-22,000 in student loan debt. Compare that level of debt against the likely lifetime earnings and you can see why it is an investment. That having been said, it is always wise to be very smart when dealing with student loans.
Myths about Student Loans
All of my financial aid will be student loans.
Most students who qualify for large amounts of financial aid will find that only a small portion of aid will be in the form of loans. There will also be grants (free money) and federal work-study (a job on campus). A reasonable generalization for most colleges is: the larger the financial need, the smaller the percentage of loans in the aid award. And in those instances where there is insufficient financial aid and/or when you have used up all of your eligibility for federal loans, consider using the tools on SimpleTuition to identify private lenders who may have programs that will work for you.
My credit won't allow me to borrow.
Students who are eligible for need-based federal student loans will not have to be credit-worthy. They will automatically qualify for the loans on the basis of financial need and not the ability to pay back the loan.
I won't be able to pay back the loans unless I get a job right away.
Not true. There are many payback options including forbearance (delayed payback); graduated payback plans tied to your earning power at the time; and the ability to extend the terms of the loan to 30 years so that the monthly payments are more manageable. The lender of need-based loans, which under the recent legislation will be completely run by the federal government, rarely goes after delinquent borrowers provided the borrower maintains contact and keeps the lender updated on the borrower's financial status at any time.
Some Insider Tips
Study hard and get in and out of college in regulation time.
Added time does two things. It will result in more, needless borrowing, and the loss of income. The latter is called opportunity costs, which refers to the money you won't be making on the job because you are still in college. So if you take an extra year at college, that will not only cost you more in terms of tuition and fees, part of which will likely be paid for by a student loan, but also the loss of the annual salary that you would have made as an employed college graduate.
Try to get outside scholarships.
If you are successful, request that scholarships be used to replace the student loan in your financial aid award. In that way, you may have to borrow less money over the four years.
Get help from your employer.
Upon graduation and employment, request that your employer consider helping pay back your student loans. After all, the employer is a prime beneficiary of your new knowledge and if they design the payback plan smartly, the employer can realize some tax advantages.
Student loans (and maybe tests!) are probably the least fun part of going to college, but if they are looked upon as an investment, and if you work to make it a good one, student loans will become nothing more than a nuisance in future years. The upside for you will far outweigh the downside. To assure the quality of the investment, it is a wise idea to use SimpleTuition's tool to fine tune your plan to make that investment even better.
FAQs
There are three types of student loans for undergraduate students.
Federal Perkins Loans:
- Fixed 5% interest rate.
- Maximum award of $5,500 per undergraduate year.
- School-awarded.
- Very limited availability.
- You must be enrolled at least half-time.
- Interest rate is fixed at 6.8% for unsubsidized Stafford loans; 4.5% for subsidized Stafford loans for the 2010-2011 academic year.
- Award limits are based on your year in school and your dependency status.
- Repayment normally starts six months after leaving school (or attending less than half-time).
- There are two types of Stafford Loans - subsidized (for which you must demonstrate financial need and the interest is paid by the federal government while you are in school) and unsubsidized (which is not based on need, but you are responsible for all the interest that accrues).
- Are borrowed through private entities, banks, credit unions or lending companies
- Interest rates can vary
- Can borrow up to the total cost of attendance, less other financial aid
- Interest can be capitalized more often (meaning, added to the loan principal), increasing the amount of money you ultimately are charged for borrowing.
- Approval and terms for private loans are based on credit history. If your rating is bad or non-existent, you might need a co-signer to qualify. Poor or minimal credit may also result in a higher interest rate on your loan.
There are many different kinds of student loans. First, know the difference between federal and private student loans. You should always use federal loans first. They carry lower, fixed interest rates and often have better terms than private (or alternative) loans. Second, know the difference between the types of loans in your financial aid award.
- Subsidized Stafford Loans: a federal loan for which the government pays interest while you are in school
- Unsubsidized Stafford Loans: a federal loan for which you pay interest while you are in school
- PLUS loans: federal loans for graduate students and parents of undergraduate students
- Private loans: loans from banks or other non-government sources
If you need to use private loans, consider all of the costs. Private loans can have origination fees, different ways of compounding interest, and higher interest rates than government or federal loans. You should also know your credit score. The lower your score, the higher your rate will likely be on a private loan. If you are an undergraduate student, you will almost definitely need a co-signer to be approved for a private loan. Fees and penalties can be higher with private loans than with government-backed, or federal loans, and your repayment terms may not be as favorable.
When choosing a student loan, investigate your options carefully. Consider the following:
- Total cost of the loan (after all of the interest and fees have accumulated)
- APR, or annual percentage rate, and fees
- Borrower benefits (such as cash back or interest rate reductions if you make payments on time)
- Deferment options
For federal student loans, such as Perkins or Stafford, you do not need a co-signer. For private student loans, you should apply with a credit-worthy co-signer to increase your chances of approval and possibly improve the rate and fees you are offered. Some lenders require you to apply with a co-signer regardless of your income or credit rating. You'll need to look at each loan program for these requirements. Applying with a co-signer may also help you receive a lower interest rate and better terms on your loan offer.
Most lenders will require a borrower to have a strong credit score (good to excellent) in addition to other criteria such as no negative credit history (such as missed payments), debt-to-income ratio (amount of debt vs. your current income) and even proof of current employment and income.
So, if you are an undergraduate student without sufficient personal income or credit history, you'll almost certainly need to apply for a private student loan with a credit-worthy co-signer.
Yes. Federal student loans, such as the Stafford Loan, and many private student loans are available for students enrolled half-time at qualified institutions. If you are enrolled less than half-time, you may be eligible for a continuing education loan or other financial aid programs from your college or university. Talk with your financial aid administrator to learn about more options.
Use the student loan comparison tools on SimpleTuition to shop around for the loan that’s right for you. Compare rates, monthly payment, total cost of loan, borrower benefits and more. When you have decided on a loan, either click on “apply” to be taken to the online application, or click on “call” to see a phone number where you can call to apply over the phone. The approval and processing of applications varies greatly from lender to lender, so it is difficult to say how long it will take. Some lenders offer e-signature, which will allow you to complete the process online and receive your funds faster. In order to complete an application for a student loan with most lenders, you will need the following information:
- Your full name, social security number and date of birth
- Your permanent address and the number of years you have lived there (no P.O. boxes)
- The amount of your monthly rent or house payment
- Your home phone number
- Your current occupation and position
- The name of your employer and how long you have been employed by them
- The business phone number of your employer
- Your gross annual income
- The contact information for a reference (name, address, home/business phone number)
- The name of your school (or the school the student for whom the loan is for is attending)
- The social security number, contact information and employment information for your co-signer (if applicable)
Some banks will send or express mail the necessary documents to you to complete the loan. As with federal student loans, you will be required to sign (or e-sign) a promissory note whereby you agree to accept the terms of the loan (rates, fees, APR, and repayment) and then repay it.
How do I tell the difference between student loans?
Do I need a co-signer for a student loan?
I'm only in school part-time. Can I get a student loan?
How do I apply for a student loan?
There are three types of student loans for undergraduate students.
Federal Perkins Loans:
- Fixed 5% interest rate.
- Maximum award of $5,500 per undergraduate year.
- School-awarded.
- Very limited availability.
- You must be enrolled at least half-time.
- Interest rate is fixed at 6.8% for unsubsidized Stafford loans; 4.5% for subsidized Stafford loans for the 2010-2011 academic year.
- Award limits are based on your year in school and your dependency status.
- Repayment normally starts six months after leaving school (or attending less than half-time).
- There are two types of Stafford Loans - subsidized (for which you must demonstrate financial need and the interest is paid by the federal government while you are in school) and unsubsidized (which is not based on need, but you are responsible for all the interest that accrues).
- Are borrowed through private entities, banks, credit unions or lending companies
- Interest rates can vary
- Can borrow up to the total cost of attendance, less other financial aid
- Interest can be capitalized more often (meaning, added to the loan principal), increasing the amount of money you ultimately are charged for borrowing.
- Approval and terms for private loans are based on credit history. If your rating is bad or non-existent, you might need a co-signer to qualify. Poor or minimal credit may also result in a higher interest rate on your loan.
