As many college graduates begin thinking about their dreaded monthly student loan payments, the soon-to-be-freshman are tying up loose ends on their financial aid packages, including a large portion of student loans. In fact, Americans have accrued more student loan debt than credit card debt—over $900 billion. The total amount is set to hit $1 trillion this year.
BlackEnterprise.com spoke with Curtis Johnson, president and chief operating officer of Student Funding Group, on why college-bound students should create a budget, how students can lower debt while in school, and the reason parents should let college students front the bill (just a bit).
PLAN AHEAD
The earlier both parents and students prepare, the better. Be sure to adhere to the school’s recommended deadline for filing financial aid or face the prospect of not receiving aid at all.
Parents: Start saving early. It doesn’t have to be a large amount, but anything counts. If your savings can’t go towards tuition costs, at least it can assist with the smaller payments, such as room and board books or
additional fees.
Students: Prepare to work. Even if you don’t qualify for work-study, seek a temporary or part-time job to assist with other expenses. Working before you reach campus can give you a jump start on personal savings.
CREATE A BUDGET
Every university and college lists the estimated cost of attendance on their website and the figures are updated yearly (if it’s unavailable, it can be mailed or emailed to you upon request). Start thinking about what the family can contribute realistically towards this education. Factor in savings, outside scholarships and all finances separate from your financial aid award. Once a student’s financial aid package arrives—breaking down how much was awarded in scholarships (i.e. merit-based, athletic or departmental), grants and federal loans—the family can determine how much is needed in additional assistance from an alternative (or private) loan.
MAKE PAYMENTS WHILE IN SCHOOL
It sounds like it would work in a student’s favor to wait until after graduation to start paying down the principal or the loan’s interest, but not so.
“[Students] can at least make the interest payments," says Johnson. “There’s no penalty for paying these loans early. If they can afford to make the interest payments, we advise students and parents to do that, which is another good way of keeping the cost down on their student loan.”
PARENTS, TAKE A BACK SEAT WHEN IT COMES TO APPLYING FOR LOANS
Let students get the loan in their name, allowing them to borrow the maximum amount possible through the financial aid award, Johnson advises. Federal loans have a lower interest rate than the PLUS loan, making this a more viable option. If parents want to assist after the student takes the loan out in his or her name, they can do so outside of taking the loan out in their name. Assisting with the interest rate is a better option.
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