Navigating Student Loans as High School Graduation Approaches
By Karen Treon, Senior Editor & College Parent
As your senior gets closer to the high school finish line, the upcoming college bills get more and more real. As acceptances come in, financial aid packages are received, and deposits come due, the picture (and total cost) becomes clear. If you are trying to nail down your financial plans and are considering loans, this post is for you.
First, let’s level set. If you are thinking about loans, your family has probably taken a number of financial steps already. Check the list below and take the time to finish any to-do items:
Use a tracker so that you can compare and better understand costs. You can download our Decision Tracker for free!
If you need a quick refresher about paying for college, you can revisit our video series for an overview.
Make sure you have submitted the FAFSA and/or CSS. If you haven’t completed this step yet, it is not too late. Here is a FAFSA post to help you get started.
And finally, make sure that your student has spent some time exploring institutional and private scholarship opportunities. This guide can help them get started.
We suggest that you make your way through these steps before moving onto loans. We won’t hide our POV here – we encourage families to exhaust - or at least fully explore - other options before turning to loans to pay for school.
That said, everyone’s financial situation – resources, circumstances, priorities, etc. – is different. We can’t and won’t tell anyone what to do, but we are here to point you to helpful resources as you navigate this path. One of the most straightforward and helpful guides can be found on the Road2College website. This article explains different types of loans in very clear language and is a great starting point for anyone exploring loans.
Your family should also consider spending some time with our Future Math Calculator. This resource gives students a realistic view of their likely financial situation after college, including student loan payments.
A few practical tips and observations:
Generally, college costs have significantly increased over the last three decades. Also, students are now limited to a total of $31,500 in federal loans (and most don’t have the established credit needed to pull other loans). Students cannot borrow enough (on their own) to pay for college (and even if they could, the repayment burden would be quite high).
Avoid letting emotions overpower the math. Shop around for the best rates and terms if financing your child’s education.
Make this a family project. This is a wonderful opportunity to help your student understand the costs of their education.
If parents are choosing to take out loans to finance their student’s education, they should consider talking to a financial advisor. Parents will be responsible for repayment, and the overlap with retirement planning is a concern for almost everyone.
In most cases, less debt is better. In most cases, it is not too late to revisit in-state or other options that would result in less debt.
Before taking out a loan
Subsidized loans are THE MOST FAVORABLE. With subsidized loans, students are not charged interest until after graduation. With unsubsidized loans, interest occurs while a student is in college even though the student isn’t making payments during that time.
Investigate initiation fees and research interest rates. Parent PLUS loans include an initiation fee and charge interest.
Shop around. Interest rates on private loans may vary. Some private loans may be less expensive than federal loans.
Compare rates and repayment options, including the timeline to repay borrowed money.
Investigate loan forgiveness programs based on your student’s major and career path. Note, however, that these can also change, and a forgiveness program available now may or may not be available when your student graduates.
