Whether or not to take out student loans for college can be a very personal decision that comes with plenty of considerations. On one hand, a recent report from the Bureau of Labor Statistics confirmed that higher education does indeed tend to be the path to a higher salary.
On the other hand, taking on $30k+ worth of debt is not a decision most of us can afford to make lightly. We’ll break down what you need to know about student loans, alternative options, and loan repayment strategies.
Best Student Loan Alternatives
Before you even start looking into student loans, it’s definitely worth researching options that can help you score free money for college. These days, there are billions of dollars worth of financial aid floating around out there, a surprising amount of which goes unused.
One recent study by the National Scholarship Providers Association (NSPA) revealed that up to $100 million worth of scholarships go unclaimed each academic year. A 2022 study from the National College Attainment Network (NCAN) also reported that up to $3.75 billion in Pell Grants were left unclaimed by 2021 high school graduates.
If you’re planning on heading to college anytime soon, make sure you look into loan alternatives like:
- Federal Pell Grants
- Additional Grant Opportunities
- Need and Merit-Based Scholarships
- Employer Tuition Assistance - Planning to work your way through college? It’s worth looking into getting a job at one of several companies that now pay employee tuition.
For more information about opportunities at the college you want to attend, contact the university retention or financial aid offices. They’ll be able to help point you in the direction of funding opportunities that are right for you.
Student Loans in the Long Run: What You Need to Know
If you’ve decided to go the loan route, then you may be wondering, should I get a federal or private student loan? In general, it’s better to apply for federal aid through options like FAFSA for several reasons.
The first is that you don’t need a credit history to apply, a consideration that will likely come in handy if you’re a recent high school grad. But federal loans also offer income-based repayment plans and forgiveness potential that most private loans don’t.
It’s also important to understand that not all federal loans are created equal. In general, there are two different categories of federal student loans.
Subsidized student loans, which tend to be offered to undergrads, remain interest-free as long as you’re currently enrolled in school. Unsubsidized student loans, which are targeted toward grad students and professionals, will accrue interest while you’re in school.
No matter which you choose, only take out the minimum amount of money you need to cover the cost of your education. Unlike many other types of debt, student loans incur daily interest, which basically means that the higher your unpaid balance, the more interest fees you’ll end up paying in the long run.
Want to get a more realistic idea of how much you’ll end up paying in interest over time?
Bankrate has a handy student loan calculator that can give you a good idea of how much interest you’ll incur based on your loan’s interest rate and your repayment timeframe.
Advice for Parents
If you’re the parent of a future college student, we don’t have to tell you how helpful your advice can be when it comes to helping your child make the right financial decisions. This can be particularly true when it comes to high school students, who have yet to experience the joys of keeping up with monthly bills.
Take the time to sit down with your child and research various scholarships and grant opportunities. Then encourage them to apply for at least 1-2 each week throughout their senior year.
While this may not sound like a barrel of fun to most 17-year-olds, remind them that student loans take an average of 5 -10 years to repay. You might even create a list of incentives that your child can earn every time they submit an application, whether it be a gift card or extra car privileges.
Or maybe you’re the type who likes to plan ahead. If you're here researching college options for your newborn, we say, right on. Be sure to look into starting a tax-advantaged 529 savings account which can help you start saving for your child’s future right away.
Student Loan Repayment Strategies
Before you take out a student loan, it’s important to understand the repayment options that the lender offers. Whether you’re looking into potential loans or are trying to figure out how to pay for one you’ve already taken out, here are several options worth considering.
Student Loan Repayment Plans
One of the perks of federal student loans in particular is that they offer income-based repayment options, which allow you to pay a certain percentage of your income, no matter how much money you make. After a certain amount of time (usually 20-25 years), any remaining balance will be forgiven.
Student Loan Forgiveness
In some situations, you may be able to have your federal student loan balance wiped out with loan forgiveness. If you’re currently struggling to make your payments, then taking the time to research any loan forgiveness plans available may literally be able to save you tens of thousands of dollars.
Student Loan Consolidation
If you have multiple federal loans, you can apply to consolidate them into a single loan to lower your monthly payments and give you more access to income-driven repayment or forgiveness options. The downside is that your loan may also take longer to repay and incur more interest in the long run.
Student Loan Refinancing
If you’re dealing with private loans, you may want to look into the possibility of refinancing for a lower interest rate. While you can also go this route with federal loans, it may not be the best play, as you’ll lose access to the many perks that federal loans have to offer.
All of these options can potentially ease the burden in the repayment period. It’s also important to be careful with your money and create a budget plan that will work for you. Learn more about budgeting here!