Published November 22, 2019
With college tuition continuing to rise year after year, very few are able to pay on their own without securing a student loan, or multiple for that matter. In fact, roughly 70% of all students end up taking out some sort of financing for college. While the college experience may be some of the best years of your life, financial planning should begin long before graduation, and especially prior to the six months after, when your loan company will expect repayment to begin. Even though you do have a grace period for some, not all lenders will allow you to defer without accruing interest. In addition, you can refinance costly loans to get a lower interest rate and monthly payment amount as you begin your career. Before we jump ahead too far however, it’s important to know a few items before applying for a student loan.
Start with Federal Loans First
Uncle Sam has a lot of ways to help you pay for college. Federal types are the first way to get some help. You can apply for these through FAFSA. You do not need any credit history to apply, and repayment is based on your income amount. There are two ways you can borrow. Subsidized loans are the best because they do not accrue interest while you are in school or during the six-month grace period following graduation. However, unsubsidized funds do build interest.
Conduct a Budget to Narrow Down What to Borrow
You do not want to borrow more than what you need. With interest, your borrowed amount becomes an even larger debt that hangs over your head for many years. Financial planners will attest that the right way to figure out what to borrow is to do a budget first and see where you come up short. Perhaps you only need to borrow $2,000 to help you get through a semester. That’s a smarter play than accepting $10,000.
Paying Fees and Interest on Your Loans
While you may know the original amount you borrowed, do you know what it comes to after interest has been added? Federal types also require that you commit to paying a fee, which is a percentage of the total borrowed amount. Currently that fee is 1.062% in 2019. You also pay interest on your borrowed amount that accrues daily while in school if it’s unsubsidized. Federal undergraduate types start with a 5.05% fixed rate currently, but this number typically goes up every year. If you decide to go with a private lender, you will likely have to submit credit history and have a co-signer to get a more favorable interest rate.
Your School’s Financial Department Handles Your Loan
Once you agree to the amount to borrow and accept the funds, your school handles the rest for you. All of the funds will be sent through your school, which means that you’ll need to let the financial aid department know and check in with them if you notice any delays in funding. Financial aid counselors will be able to provide information on the various loan programs available, as well as eligibility, in order to make the borrowing process as stress-free as possible. They are trained in both government and private resources.