For parents of high school seniors who are heading off to college in the fall, springtime can be both ecstatic and frightening. When your student receives those acceptance letters and decides on a college to attend, you can certainly be proud of all that you have accomplished together. But, then you get the financial aid award letters and a knot starts to form in the pit of your stomach. Are you really going to be able to afford all of this?
As you read the financial aid award letters, you notice that a portion of the package is going to be in federal student loans. You make a mental note of this as you realize that there will still be an amount outstanding, even after those loans are applied towards expenses. This is called the “gap amount” – the difference between anticipated costs and expected aid. Many families consider filling this gap with private student loans. Before you take that step, though, you will need to discover a plan that will help you manage your student loan borrowing:
• Check the math twice: The first rule of student loan borrowing is to be sure that you only borrow exactly what you need. Extra money that is available after college expenses are paid tends to get spent, and then you are back in the same position of borrowing that amount again for the next semester. Be aware that interest can build up over time, and make those day-to-day purchases quite expensive. Add up exactly what your costs are going to be, and then only borrow enough to meet those expenses. If you come into some unexpected money, think about setting it aside and using it for next semester’s tuition instead of borrowing more money.
• Start planning for repayment now: Four years down the road is not when you want to start thinking about how you are going to repay any student loans you take out now. Sit down with your student and thoroughly discuss the situation. Use student loan calculators to estimate repayment costs, and determine who will be responsible for making those payments. Look at the salaries graduates from your child’s college can expect to earn, and determine if there will be enough money to make those payments.
• Compare private student loan providers: If you decide that private student loans are the way to go to fill any gap amount, make sure you research the lenders carefully. While federal student loans are standard and the terms are universally understood, private student loans may vary from one lender to another. Look for lenders that offer zero fees and competitive interest rates like Discover Student Loans, for example. They have different types of loans available to match the field of study, easy applications, and U.S.-based loan specialists to offer assistance. They also offer information on scholarships, as well as cash rewards for good grades, which can be helpful in paying for college costs next semester.