Before You Apply for a Student Loan
So, your awarded financial aid isn’t enough to cover your full cost of attendance and you know you will need additional student loans to pay for college. Before you apply, consider how you’ll manage repayment. Here’s what you need to know.
Federal student loans are limited. Undergraduate students can take out only so much in federal student loans each year. If you need additional student loans above that limit, you may need to consider private student loans or parent loans.
You’ll need adult assistance. You will need to have a creditworthy cosigner for any private student loans, unless you’re the rare student who can meet underwriting criteria on your own. If your parents are willing to consider a federal Parent PLUS Loan, they will need to borrow that money and be responsible for paying it back themselves.
You will need to repay the debt. Student loans are not usually dischargeable for bankruptcy or other financial hardship. When you think about your repayment amount, remember:
- Your repayment amount will be more than the original loan amount. Student loans accrue interest on a daily basis. At certain times, unpaid accrued interest may be capitalized, or added to your principal balance, and begin accruing interest as well.
- You will have a limited income. Carefully consider how much a graduate with your major can realistically expect to make in an entry-level position. Add anticipated student loan payments for all your undergraduate years, including any federal loans in your financial aid package, to anticipated expenses for a realistic budget based on a starting salary. If you will not be able to meet all your expenses on your starting salary, you may need to rethink your ability to take on student loan debt.
You can make interest and other payments during college. Most lenders allow you to prepay or pay extra on your student loans at any time without penalty. In addition, paying interest as it accrues while you’re in school can reduce the amount of interest you’ll need to repay after graduation.
Private student loans vary. Every lender has its own underwriting criteria, qualification requirements, loan terms and repayment schedules. Before you sign for a loan, research your options. Consider:
- Variable vs. fixed interest rates. A variable rate may go up or down according to market conditions, while a fixed rate remains the same throughout the loan term. A low variable rate is often appealing, but remember that it may change drastically over your term.
- Actual interest rate. Many lenders offer different rates based on the applicants’ and cosigners’ credit. If you are unable to determine your rate upfront, consider the highest rates.
- Repayment assistance and benefits. Some lenders or loan servicers offer assistance if you are unable to make your monthly payments. You may also be eligible for benefits, such as a reduced interest rate for making automatic electronic payments. Consider these features carefully.
- Managing repayment. Will you need additional loans for future years? Do you want to obtain all your loans from a single or limited number of lenders to make repayment easier? Will you want to consolidate multiple loans later, and does your lender offer that option?
You may need to rethink your college choices. If you find that you cannot afford to take on enough debt to pay your full cost of attendance, you may need to come up with a new plan.
- Earn more. Increase your ability to pay college costs as they occur by earning more income while you’re in school and on breaks.
- Reduce expenses. Your full cost of attendance may include expenses you can cut. Can living off campus without a meal plan save you money? Are the book and fees and transportation costs realistic for your situation?
- Ask for help. Do you have relatives who are willing to offer you money for college? Are you eligible for additional scholarships, either through the school or outside entities?
- Attend a less-expensive school. If you still cannot afford your cost of attendance without taking on unmanageable debt, you may need to consider withdrawing and attending a less-expensive school, at least for a year or two.
Visit Student Loan Game Plan for more information and tips.