5 tips on how to navigate student loans
Many college students apply for student loans, but the application process can be overwhelming. What’s more, students need to be smart about managing these federal, and often supplemental, loans over the course of their college experiences and beyond.
“In many cases, student loans are a young person’s first real money-management opportunity,” says Casey Gorman, senior business analyst in the Repayment Management department at Apollo Education Group, parent company of University of Phoenix. “Student loans are invaluable to many people trying to get an education, but they are easy to abuse.”
Gorman and Chris Conway, also a member of the Repayment Management team, offer these tips to help you steer through the complicated process:
1. Know how much you need to borrow for your degree program.
Most university websites give an estimated cost of tuition. University of Phoenix, for example, offers breakdowns for the different degree programs. Students will also have to factor in interest payments and potential tuition increases when determining a total loan amount, Gorman says.
2. Secure a loan only as a last resort.
Look at other sources of funding prior to applying for a loan, Gorman recommends. Students need to take on as little debt as possible and attempt to secure scholarships, grants — even money from family members — before taking out loans.
3. Apply for loans early.
Conway says students should fill out the Free Application for Federal Student Aid (FAFSA), work with their college financial aid offices during the process and possibly attend FAFSA workshops. “The challenges will likely be having the income and tax information needed for the FAFSA, but there is plenty of FAFSA help out there,” she says.
4. Borrow only what you need, and track your debt.
Student loans are capped for both undergraduate and graduate students, but many students want to borrow the full amount available. Gorman advises against taking on too much debt just to gain extra pocket money, since you would then risk running out of cash and being unable to afford annual tuition increases. A higher loan also will mean a higher monthly payment after graduation.
She also encourages students to track their loan amounts on the National Student Loan Data System (NSLDS) website. This database system is run by the U.S. Department of Education, which works with schools, lenders and other governmental programs and allows students to track their loans and grants online.
5. Repay your loans on time.
Graduates who default on federal loans will have to pay later, as their employers will be forced to step in and deduct loan payments from paychecks. “No one should ever default on a loan,” Conway says, “and face wage garnishment or tax offsets.”
Overall, if managed correctly, student loans can be a good investment for your future. “Yet when making any investment, you need to research what you’re getting into — to make the right choice for you,” Conway says. “If the student loans help you remain employable for 40-plus years, they will likely be a good investment.”