Student loans are needed more than ever. How to navigate the options
Students transport their lunches to the University of South Carolina campus on August 10, 2020 in Columbia, South Carolina.
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Coronavirus-induced economic recession could prompt more Americans to turn to student loans for college these days.
The good news is that if you have to take out a federal student loan, the interest rate is favorable at 2.75%, said Stacey MacPhetres, college coach at Bright Horizons.
âIf families are looking to borrow in any way, it really seems like a reasonable opportunity,â she said.
What college will eventually cost you vary depending on whether you attend a public or private college and the amount of financial aid or scholarships you receive.
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Tuition and fees at a four-year public college averaged $ 10,440 for students in the state for the 2019-2020 school year, according to the College Council. Outside the state, four-year public colleges cost an average of $ 26,820 and private four-year nonprofit schools an average of $ 36,880.
Navigating the student loan process tends to be confusing for many students and parents, said Michele Streeter, senior policy analyst at the Institute for College Access and Success.
âIt can be overwhelming,â she said. âThere are a lot of things that come into play every step of the way. “
Here are the steps and options for student loans.
To find out how much money you’ll have for your spending, first look at your family spending plan.
Have everyone sit down and keep track of what is being spent over a period of time, suggested MacPhetres, who previously worked at JPMorgan Chase as vice president of education finance / student loans and as Senior Financial Aid Officer at Emerson College and Elms College.
Watch to see if you can make any adjustments to generate additional cash flow.
Then do the same analysis and see what is spent on the student who goes to school. These expenses should go away once the student leaves and may leave you with some extra money.
âThis is the most important first step when you think about funding the university: what can we, as a family, allow ourselves? MacPhetres said.
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The first thing to do is to fill out a Free Federal Student Aid Application Form, which you will need to access federal money, including financial aid, scholarships, work-study program and loans.
âYou don’t want to leave money on the table if there’s something available,â MacPhetres said.
Also make sure that you get all the merit money you can in the form of private scholarships. School counselors and college coaches can help, as can websites like Bourses.com.
If you decide you need a loan, turn to a federal student loan first, MacPhetres said.
“The rates are always lower and the terms are extraordinarily generous under the federal student loan program,” she explained.
It is up to the school to determine how much loan you qualify for each year. However, there is borrowing limits on subsidized and non-subsidized loans. For undergraduates, the subsidized loan limit is $ 3,500 and the unsubsidized limit is $ 2,000, bringing the total to $ 5,500. The total is $ 6,500 for second year students and $ 7,500 for third year and beyond.
With subsidized loans, based on financial need, the US Department of Education pays interest while you are in school at least part-time, for the first six months after leaving school, and for a deferral period.
Unsubsidized loans are available for undergraduate and graduate students without any financial requirement.
Then decide if you want to borrow more than what the Federal Student Loan will give you. It comes down to your budget and whether you can get more cash out of it after making a few adjustments.
âAlways really look at all of your options,â MacPhetres advised. “Borrow carefully if you can.”
Parents can take out a Direct Plus loan to help pay for their child’s college education
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Parents can take out a Direct Plus loan to finance their dependent child’s undergraduate education. The loan has a higher interest rate and fees than federal student loans, but there is a minimum credit check, Streeter said.
The interest rate for the first loans disbursed from July 1, 2020 and before July 1, 2021 is set at 5.30% for the term of the loan.
While there were years when families with exceptional credit could get better rates with a private loan, MacPhetres said he believes the Plus loan has an attractive rate this year.
With private loans, you will go through outside lenders, such as banks.
First, decide who will be the borrower, the parent or the child. If the child is on loan, he will more than likely need a co-signer, MacPhetres said.
There are also a variety of repayment options, such as starting monthly payments after the loan is dispersed, interest-only payments, and deferring payments until graduation.
Rates vary depending on the credit history of the student’s parent or co-signer, as well as the type of repayment option you have chosen. Prices can also be variable or fixed.
âIf you are looking to assess store private loans, you can apply for more than one as long as you do over a 30-day period,â MacPhetres explained. “It is only recorded as a credit stroke.”
Streeter believes private loans should be a last resort.
âA family should explore other options before entering the private loan market,â she said. “They generally have much worse conditions than federal plans.”
However, in some cases, parents with good credit can get a lower rate in the private market, although terms are still not as good as federal loans, she said.