Manage Your Student Loan Borrowing

For parents of high school seniors who are heading off to college in the fall, springtime can be both ecstatic and exciting! When your student receives their 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 notifications and the knots start 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 notifications, you notice that a portion of the package is going to be 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 toward 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: Two to 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.

As the high school seniors get set to embark on their college careers, there is a March madness to get all of the college financial aid and financing into place. One helpful component of this process can be college student loans, but it can be somewhat confusing to understand all of the variables involved. Learn now and be prepared to manage your student loans responsibly!