If you’re like most students, you’ll likely need to consider borrowing student loans to pay for college. But what’s the best way to borrow?
Student loans are a big commitment that can take several years to pay off, and there are several things to know before you accept any loan terms.
Thankfully, there are experts willing to share their knowledge and help students like you borrow smart. In a recent Twitter chat, a group of nonprofit organizations and experts on higher education got together to share their best tips on student loan borrowing.
Trellis Company, a nonprofit* that helps borrowers repay their student loans and works to improve access and success in higher education, co-hosted the chat with the Education Finance Council (EFC). They were joined by several other higher ed organizations focused on student financial wellness. Check out their tips on the topics below!
Understanding and comparing financial aid award offers
Financial aid award offers don’t all look the same. Comparing them is an essential part of figuring out how much to borrow and which loans you should choose.
A1: Call the financial aid office of one of the schools to which you’ve applied. Financial Aid Counselors are wonderful people who have lots of knowledge to share and can explain things in a different way. #CollegeSuccess— HEFWA (@the_hefwa) March 25, 2021
Like the Higher Education Financial Wellness Alliance (HEFWA) recommends, contacting your financial aid office is a great first step if you need help with your financial aid offer letter. They can help you understand any confusing or unclear terminology.
If you’re still in high school, your high school counselor can also help you understand your financial aid offer.
Borrowing the right amount for college
Picture this: you get a financial aid offer from the school of your dreams. When you total up all the grants and scholarships in your offer, they come up short of paying for your full cost of attendance.
This happens to many students. Often times, taking out student loans can be the best option to cover the gap between the aid you don’t have to pay back and what you still owe.
If you need to borrow, here’s what the experts have to say about it:
A2: We encourage students to consider options like commuting vs. living on campus, which may save some cost but may also impact some institutional money offered, so check with the financial aid office at the college. #CollegeSuccess https://t.co/IFFj5eKIcM— INvestEd (@INvestEdIndiana) March 25, 2021
A2: The “right” amount to borrow depends completely upon your circumstances. Student loans are an option, but it’s important to do your research first and see if you can find any other “free” aid. 1/3 #collegesuccess— HEFWA (@the_hefwa) March 25, 2021
When you’re figuring out how much you need to borrow, keep these things in mind:
- The cost of the school you plan on attending
- The college major you intend on picking
- The potential annual salary of your intended major
Your school choice and major affect your future pay. Will you make enough money after graduation to repay the amount you borrowed?
Additionally, consider Kevin Wilson’s advice below. Make sure that the amount you’re borrowing doesn’t result in a monthly loan payment that’s more than 10% of your future career’s potential monthly gross salary.
Use MOSAIEC’s Student Loan Payment Calculator to get an idea of what your monthly payments could look like based on how much you borrow, and make sure you’re staying under that 10% guideline.
The best type of student loan
From federal to private, unsubsidized to subsidized, there are a lot of student loan options to choose from. But how can you make sense of them and find the best type for you?
A3: First, a student who needs to borrow for college should complete the FAFSA – the Free Application for Federal Student Aid! Use federal subsidized and unsubsidized loans before any PLUS or non-federal loans. https://t.co/UzLMZbzkhR #CollegeSuccess— Education Finance Council (@EFCTweets) March 25, 2021
Completing the FAFSA is an important first step in getting the best federal student loans. But from your federal loan options, which should you choose—subsidized or unsubsidized? Here’s what Trellis and Kevin Wilson had to say:
A3: Federal loans are the best option. An undergrad student may be awarded subsidized and unsubsidized loans. If you only need one, the subsidized loan is better because the government will pay interest for you as long as you are attending at least half-time. #CollegeSuccess— Trellis Company (@Trellis_Company) March 25, 2021
#CollegeSuccess #KYGoestoCollege If you do have to take out an unsubsidized loan, I STRONGLY suggest trying to pay the interest while you're in school to keep the premium down! https://t.co/90i0bcqARB— Kevin Wilson (@Kevin_KHEAA) March 25, 2021
When you need to borrow more than your federal loan limit
For federal loans, there are limits to how much you can borrow each year (annual loan limits) and in total (aggregate loan limits).
If you borrow federal student loans up to your loan limit, then you can’t borrow any more after that. When that happens, here’s what to do:
A4: (1/2) Parents of dependent students can take out a Parent Plus loan. The Parent Plus loan is credit based but if the parent is not approved the financial aid office can award the student an additional unsubsidized loan. #CollegeSuccess— Trellis Company (@Trellis_Company) March 25, 2021
What the federal student loan application process looks like
To take out a federal student loan, you first have to apply for one. That means filling out the Free Application for Federal Student Aid, also known as the FAFSA.
The FAFSA helps you apply for not only federal loans, but also grants and work-study opportunities.
A5: The first step is filling out the FAFSA. Next, accept the loan award from the Financial Aid office. Usually done on the college's student portal. Next, complete entrance counseling & sign a Master Promissory Note (MPN) before loan funds can be sent. #CollegeSuccess— Trellis Company (@Trellis_Company) March 25, 2021
When you fill out the FAFSA, you’ll be asked for information about yourself (and your parents if you’re a dependent student). It’s best to keep a few documents handy when completing it.
A5: Documents to have handy- Student’s picture id and social security card - Co-signer’s picture Id, social security card, current employer info and paystubs. And start thinking about who you will give as references. #CollegeSuccess #nhheaf #nhheafnetwork— NHHEAF Network (@NHHEAF) March 25, 2021
What happens with federal and private student loans while you’re in school
When you take out student loans, you’ll need to keep track of them while you’re finishing your education.
A6: For any loan other than the federal subsidized loans, interest begins to grow on any disbursed amount, so the overall cost of the loan increases. Many loans can be deferred, which means you don’t have to make payments while enrolled at least half-time. #CollegeSuccess— INvestEd (@INvestEdIndiana) March 25, 2021
Federal loans have what’s called a “grace period”, which gives them an important advantage over private loans.
A6: Your Federal Direct Student Loans will be deferred for the first 6 months after you leave school (your "grace period"). #CollegeSuccess— MEFA (@MEFAtweets) March 25, 2021
Borrowing less while you’re in school is a good goal to aim for. Working with your financial aid office to borrow less is a partnership that can pay off!
A6: Loans approved for the full academic year are split between each term, so if you don’t need the full 2nd term amount, contact the financial aid office to reduce it, so that you borrow less! #CollegeSuccess— INvestEd (@INvestEdIndiana) March 25, 2021
When it comes to private loans, things get a little more complicated—but don’t worry! Your lender is there to help you have a successful repayment, so keep in touch with them!
A6: Federal loan payments would be postponed as long as the student is attending at least half-time. Payments on private loans vary by lender, so the student should check with the loan holder to confirm when repayment would start. #CollegeSuccess— Trellis Company (@Trellis_Company) March 25, 2021
Student loan repayment… and how you can prepare for it!
At last, the elephant in the room: when do you start repaying your student loans? The answer depends on the type of loan you have.
The grace period for federal loans also factors into when you repay your subsidized and unsubsidized federal loans.
A7: Repayment for federal loans typically begins 6 months after a student finishes school or drops below half-time enrollment (6 credit hours). Standard repayment is for 10 years, but you may have other options: https://t.co/AoU8it1Osr #CollegeSuccess— INvestEd (@INvestEdIndiana) March 25, 2021
Repayment goes more smoothly when you keep tabs on your loans. When you follow the right steps, it’s totally doable!
A7. Student loans don’t need to be scary! Follow this to-do list to prepare: educate yourself on the repayment terms of private and federal loans, create a budget, and pay the interest on the loan while in school. #CollegeSuccess #nhheaf #nhheafnetwork— NHHEAF Network (@NHHEAF) March 25, 2021
A7: Students can prepare for repayment by creating an online account with your federal or private loan servicer to track your loan totals, accrued interest, and potential monthly repayment as you progress through your program. #CollegeSuccess— INvestEd (@INvestEdIndiana) March 25, 2021
When you borrow, make the informed decision
Borrowing student loans can have serious, long-lasting impacts on your life. Using the tips above, you can be better prepared to take the right steps, borrow wisely, and use student loans only when you really need them!
*Trellis Company provides MOSAIEC as a free public service dedicated to helping college students find the best ways to pay for their education and graduate with the lowest amount of student loan debt possible.
For over 25 years, I have worked to help students go to college. The last 15 of those years have been focused on providing one on one counseling to students, parents and family members throughout the financial aid and college-going process.
I am a financial coach because I enjoy talking with people, and helping them with building their future by exploring their educational, personal and financial goals, and celebrating their successes. I hope to provide the tools and support you need to help you achieve your goals.
This service is not intended to constitute any tax, investment or legal advice. If you need investment, legal, tax advice, and/or credit counseling, please consult with a professional within those areas.
Links to third-party financial resources are provided as a convenience for informational purposes only. Trellis Company does not endorse or approve any of the products, services or opinions of the entities or individuals associated with these links. Trellis Company bears no responsibility for the accuracy, legality or content of any external site associated with the links provided or any subsequent links.
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