By: Alanna Ritchie
Attaining the college degree that will pave your way to an exciting career means making vital decisions about how you will borrow money for school now and pay loans later.
You can take financial responsibility for your education by learning about the available types of student loans and repayment options.
Here are 5 steps for managing student debt:
Step 1: Fill out the FAFSA
You can narrow your choices and find out what loans you qualify for by completing the Free Application for Federal Student Aid (FAFSA). This form uses student data concerning family size, income and assets.
Based on this information, the federal government will offer loans with low interest rates and feasible repayment plans. For most students, federal loans are the best options.
Step 2: Looking at Federal Loans
The main types of federal loans are Stafford, Perkins and PLUS loans. You will typically accept a number of loans to cover the full cost of attendance.
Stafford
Subsidized: These are for students who demonstrate financial hardship. The government pays interest on these loans while you are in school. The interest rate for the 2012-2013 academic year is 3.4 percent. Undergraduates may borrow up to $5,000 annually, depending on their year in school.
Unsubsidized: Any student may apply for these because they are not based on financial need. These loans accrue interest at a rate of 6.8 percent. You are responsible for the interest, but you can typically defer payments until after graduation. Undergraduates can borrow up to $12,000 annually, depending on their year in school.
Perkins
This loan is for student with exceptional financial hardship. Undergraduates may borrow up to $5,500 a year. The government pays interest while you are in school. Upon graduation, the loan has a fixed interest rate of 5 percent and is usually repaid over a 10-year period.
Not all schools participate in the Federal Perkins Loan program and funds are limited. Make sure the schools that interest you participate in the program before applying.
PLUS
This loan is for the parents of undergraduates. Borrowers must have good credit standing and the interest rate is 7.9 percent. Unlike other federal loans, PLUS loans do not have a maximum amount. The totals are set by each school and can cover tuition and other education expenses, including living expenses and books, not covered by other types of financial aid.
These loans are also available for graduate students.
Step 3: Finding Additional Funding
If federal loans do not cover the cost of your education, you may be able to receive private loans. You will need to apply for these separately, and many private lenders will use credit history to determine the interest rate on these types of loans. Because of this, students may choose to have a co-signer who has a strong credit history and can ensure the loan will be repaid.
Step 4: Beginning Repayment
Within six months of either graduating or dropping below part-time enrollment, you will need to start paying back your loans. Although it is your responsibility to contact your loan provider, it is likely that you will receive letters alerting you that payments are due. Regardless of who contacts who, after six months, it’s time to start paying up.
Stay on top of what you owe and when you owe money by either keeping a notebook or spreadsheet with detailed information on all your loans. Don’t let one loan you’ve forgotten about slip into default because you didn’t keep track of the paper work.
Step 5: Find a Plan and Stick with It
The last piece of advice to assist you in this process: Be aware of your repayment plan options. The Federal Student Aid website provides helpful information on plans that are tailored to meet individual needs. Don’t panic if your income is low following graduation. Make sure there is a long-term plan that also covers your own living expenses.
Making monthly payments is a great way to foster good habits. Don’t allow late payments to increase your loan debt.
Paying for school is like being a good student. It requires consistency, good habits and determination to tough it out to the end—an end that will eventually get you to a place where you are debt-free and armed with a degree.
Debt.org is America’s Debt Help Organization, serving the public with thorough and accessible information on financial well-being. For more information, please visit www.debt.org.
Alanna Ritchie is a content writer for Debt.org America’s Debt Help Organization, where she writes about personal finance and little smart ways to spend (and save) money. Alanna has an English degree from Rollins College.