Your kid has settled on a college. Congratulations—and buckle up. Now it’s time to figure out how to pay for it.
Taking out student loans has long been the primary solution. But with student loan debt becoming a $1.7 trillion crisis, families are rethinking the pros and cons of this financing option.
Indeed, more than 60% of the class of 2019 graduated with student loan debt, with an average of $29,000 for bachelor degrees, according to the Institute for College Access & Success (TICAS), an advocacy group that promotes access to higher education. And that amount varies greatly from state to state. The TICAS “Student Debt and the Class of 2020” report found that, on the low end, students in Utah averaged $18,344 in debt, while students in Pennsylvania, Delaware and New Hampshire had an average of nearly $40,000.
So, yeah, the prospect of applying for loans to help pay for higher education can be downright daunting. Here’s what the experts recommend doing (and considering) before signing on the dotted line.
1. Fill Out the FAFSA
Step No. 1 is filling out the Free Application for Federal Student Aid (FAFSA), even if you don’t think your family will qualify for aid.
“No matter your income or whether you will ultimately need to borrow, you must fill out the FAFSA because that’s what all colleges use to decide your package,” says Nancy Goodman, executive director of College Money Matters, a nonprofit dedicated to helping families afford higher education.
And do so as soon as possible. The FAFSA for the 2023 to 2024 academic year opened in October 2022 and is due by June 30, 2024. Many families begin the college search early but often don’t think about the financial component until later.
“If you have 11th graders, now’s the time to start understanding the loan process, how much money you’re going to need and what your family finances are,” says Leslie Tayne, a financial attorney, founder/managing director of the Tayne Law Group in Melville, N.Y., and author of Life and Debt.
Tayne recommends setting aside at least one hour to complete the application, though you can save your progress and come back to it later. FastWeb has a handy online checklist of all the documents you’ll need for the FAFSA, and Millie put together a list of top tips for filling out the form.
2. Don’t Borrow More Than You Need—and Go Federal
Figure out exactly what you need to borrow money for, Tayne says. Do you just need loans to cover tuition? For room and board or rent? What’s the cost of living where the student will be attending school?
“Try to take the least amount of money possible,” Tayne says. “And stick with federal loans, versus private loans, if you can.”
Here’s why: Loan deferment, forbearance and repayment holidays (like the one that began in March 2020 during the COVID-19 pandemic) usually only apply to federal student loans, not private ones. Same goes for the loan forgiveness program recently announced by the Biden administration.
“While there is broad consensus that students should exhaust federal loan eligibility before turning to other types of loans,” the TICAS report states, “the most recent federal data show that more than half of undergraduates who take out private loans have not used the maximum available in federal student loans.”
Lauren Anastasio, a certified financial planner and director of financial advice at investing and banking platform Stash, says: “You should be able to borrow up to the full ‘cost of attendance,’ which is an all-encompassing number determined by each school. The amount may be more than what you need to cover tuition, room and board, books, etc., so feel empowered to decline extra funds you don’t need.”
You might also consider opting for an income share agreement (ISA) instead of taking out student loans. Find out how these plans work here.
3. Apply to a Variety of Schools to Get the Most Bang for Your Buck
Students (and parents) should keep an open mind when it comes to applying to schools.
“One mistake many people make is not applying to a variety of schools and not including a state college or lower-priced school in the mix,” Goodman says. “The problem is that you don’t know what your financial aid package will be until March or April, and it will be different for every college. If you limit your applications, you will limit your financial options.”
Students may have their hearts set on a particular school based on its prestige, location or aesthetics, but it’s likely not the only place they can get a quality education.
“Just like you can save money on other big-ticket purchases by shopping around, you should shop around when it comes to purchasing an education,” Anastasio says.
And don’t forget to look at a prospective school’s rate of graduating students in four years, Goodman says. More time in school means more loans—and future debt.
“A corollary to this is to make sure the school is at the right level for the student and that supports are in place so they don’t drop out,” Goodman adds. “Debt with no degree is the worst possible outcome.”
4. Consider the ROI
Like with any big investment, students and their families should try to calculate the return on investment (ROI) on student loans to discern how easy (or difficult) it will be to eventually pay those loans back—with interest.
“You’ll want to focus on two things in order to determine this: the price you’re paying for the education and the earning potential you’ll have once you’ve completed it,” Anastasio says. “What is the average starting salary for a new graduate with the degree you’re interested in pursuing? Based on that reality, what will it feel like in a few years to be paying back the amount of money you would need to borrow?”
Stephanie Anderson Witmer is a freelance journalist and content writer whose work has appeared in numerous publications, including Prevention, Women’s Health, USA Today, Parade, Yoga Journal and more.
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