Looking for money for college? Expect about half of it to come in the form of loans. The average Class of 2006 graduate owed $21,100, according to the Project on Student Debt.
“Student loans for college are not bad if you are borrowing with a sense of how much you are taking out and a sense of the monthly payments,”said Rick Shipman, Michigan State University’s director of financial aid. “The problem is if you are borrowing in an irresponsible way just like a credit card. You could easily get yourself in trouble.”
Finding your way through the maze of loan choices can be more intimidating than an AP history exam. But it can pay off. The difference between the best loans and the worst can save you thousands of dollars in the long run. Consider it the scholarship you give yourself. Here are seven steps from the experts to keep you out of trouble and on the path to saving money.
1. File the FAFSA student aid form as soon as possible in February after you get your tax forms. Even if you don’t think you’ll get much cash, students are often surprised, and you’ll still need the FAFSA to access better deals on loans. Plus the sooner you file it, the sooner you get in line for first-come, first-serve aid programs. In most states, you can get free help completing the FAFSA at College Goal Sunday.
2. Don’t borrow more than you really need. Borrowing to finance your education can be a good investment but not if you’re using the money for a new iPod or a spring break trip. Your college’s financial aid award letter will tell you how much loan aid you qualify for. But many students borrow less than the maximum to save themselves future payments. Some also seek loans above the maximum, but before doing so get the advice of a financial aid counselor on your options. That’s because borrowing more than the standard maximum without your financial aid office’s approval can put your other aid at risk.
3. Investigate sponsored loans. Some colleges, states, employers and scholarship groups provide special private loans at rates that are even better than some federal loans. But you’ll have to ask around and check scholarship directories to find them.
4. Compare loans. The easiest way to compare is based on the lowest fixed Interest rate, but other terms are important too. (See 4 Factors to Compare Loans and 5 Types of Loans for more info.) Usually federal loans, starting with Perkins, are the best deal. Private loans are more expensive. But sponsored loans can sometimes be better than both.
5. Compare federal loan providers. If you attend a college that participates in the Federal Family Education Loan Program (FFELP), you’ll also be able to choose which financial institution provides your federal loans. The basic terms are the same as Direct Federal Loans, but some institutions offer better benefits than others, such as more flexible repayment plans or rewards for on-time payments. Many of these same institutions also offer private loans on different terms.
6. Apply for loans accurately and on time or you might not get the money before your first college payment is due. Also if you’re applying for private loans or the federal PLUS loan, make sure there are no errors on your credit report, which can affect what rates you’re eligible for. You can get your report free at Annual Credit Report.com.
7. Consider career choices in your loan plan. Some careers will pay better than others and make it easier to make your monthly payments. And some jobs such as the Peace Corps,
the military, and teaching may provide loan forgiveness programs for special public service.
Christine MacDonald has been a reporter for 10 years and recently paid off her own student loans.