As someone who works at the Macalester Financial Aid Office as a student staff member, I get a lot of questions and concerns over taking out student loans. I have taken out loans myself -- Federal Direct Subsidized and Perkins Loans -- and have done a lot of research into what everyone should know about student loans before and during college. Here is my list on the basics I think you should know.
1. Apply for scholarships.
Every university has a different policy when it comes to outside scholarships being used toward paying tuition. Some universities will allow you to use the full scholarship amount toward replacing loans, others may have it completely replace need-based aid, and others may do a split between replacing need-based aid and using part of the scholarship toward replacing loans.
Depending on which policy your university abides by, you may be able to leave school with little to no debt from loans if you apply for and win scholarships.
2. You do not need to accept your loans.
The FAFSA determines whether or not you have financial need and are eligible for Federal Loans. Sometimes schools will give you Federal Subsidized and/or unsubsidized Loans as part of your financial aid package. You do not have to accept these loans simply because they are part of your package. You always have the option to decline the loans offered to you if you are able to afford your chosen university without them.
3. Pay your loan interest while in school.
For unsubsidized loans (such as the Federal Unsubsidized Loan, the Parent PLUS Loan, or private bank loans), interest begins to accrue as soon as you receive the loans. If you pay the interest that accrues every year while in college, you could potentially save hundreds of dollars.
4. Earn a degree that will give you the highest return.
Attending college is an investment. You should be attending college in the hopes of improving your financial future and earning more money than if you didn’t attend college. Your goal should be to maximize the return on this investment. That means getting the highest salary possible for the lowest amount of student loan debt. Currently engineering, actuarial mathematics, and computer science degrees have the highest starting wages.
5. Try to secure a job for post-college before you graduate.
For subsidized loans, you will have a grace period of six months before you are charged interest. It would be in your best interest (literally) to start networking with local companies and employees from your dream company before you graduate to make it easier to find a job within these six months.
6. Know who your loan servicers are.
Everyone who has a Federal Loan is assigned a loan servicer by the U.S. Department of Education. Loan servicers are the companies that work with you on repayment plans, loan consolidation and other tasks related to your Federal Loan. If you do not know who your loan servicer is, you are not going to know who to make payments to once you graduate. On top of this, some loan servicers have websites that are impossible to navigate and are very uninformative. These issues will all increase your likelihood of defaulting. In order to prevent this from happening, you should make sure that you talk with your school’s Financial Aid Office to completely understand everything there is to know about your loans. Going onto NSLDS.ed.gov is also a great resource for finding your assigned servicer, tracking payments, and checking your loan status.
7. Consider loan forgiveness as a last resort.
If you end up working for a non-profit or government organization after college, you may be eligible for loan forgiveness under the Public Service Loan Forgiveness Program. This program will forgive the remaining balance on your Federal Loans after you have made 120 qualifying monthly payments while employed full time by a qualifying employer.
There are many dangers that could disqualify you from the program if you are not careful or fail to meet all the requirements. For example, missing payments, changing jobs and not submitting your paperwork promptly after 120 payments have been made could all lead you to being disqualified from receiving student loan forgiveness.
Another danger is if you work in a Title I school as part of the Teacher Loan Forgiveness program, but are doing so on behalf of Americorps, you cannot qualify for Teacher Loan Forgiveness.
There are a lot of catches and requirements involved with relying on loan forgiveness as a method of getting rid of student debt, so it is often better to be financially secure in paying off your own debts.
Loans aren’t nearly as bad as many people make them out to be as long as you are educated in what you are signing up for. As long as you are earning a degree that can afford to pay off any student loans you may have, and you are mindful about payment amounts and due dates, you should face no issues. Some of the main reasons people default include: not knowing who their servicer is or how to pay their loans, not earning a degree, earning a degree in something that will not earn them enough money to pay off their student debt, and taking out too much debt for a school they could not afford. Before accepting any student loans, you should make sure that it is a worthy investment that can be paid off by whichever occupation you choose.
