Sponsored story by: KEMBA Financial Credit Union
If you are a senior graduating from high school or a parent of a soon-to-be grad, you are likely in decision mode reviewing higher education options and financial aid award letters.
Right now, schools and universities are vying for your tuition dollars, which means you are probably getting daily mailers from schools and/or lenders – some that you reached out to for information and some that you didn’t. The reason they are putting on the full-court press is that most students will make their final decision on their next steps by May or June, and schools want to provide as much information to help you make your choice, including how your education is going to be funded.
After choosing your top school, the next hurdle is just that – figuring out how you will pay for it. With the rising cost of higher education, you may experience “sticker shock,” but rest assured, there are many options available. Once you ensure you’ve taken full advantage of all scholarships and grants available to you, one of the go-to methods of paying for higher education is by taking advantage of student loans.
Utilizing student loans to help finance college tuition is very common. In fact, according to Student Loan Review, 66% of students attending a public university will graduate with student loans, compared to 75% of private school students. The amount that you receive from student loan programs can vary, and there are multiple types of loans to consider.
Types of Student Loans
The most common type of student loans are federal loans – these should always be utilized before any other type of loan options - which are administered by the Federal Student Aid office, in association with the U.S. Department of Education. Federal student loans are needs-based loans that range from $5,000-$12,000 per school year that come in two categories – deferred and non-deferred. A subsidized loan provides the funding interest free until six months after graduation, while an un-subsidized loan will begin accumulating interest as soon as the funds are disbursed. Both subsidized and un-subsidized federal loans allow payments to be deferred while the student is still in school, with payments beginning 6 months after graduation. The first step to determine your eligibility is completing the FAFSA, or Free Application for Federal Student Aid.
The Parent PLUS loan is another option to fill the gap between federal loans, college savings, and other funding methods. Parent PLUS loans are similar to federal loans, but unlike federal loans which are secured by the student, Parent PLUS loans are guaranteed by the parents. These loans are based on parents’ income and are usually easy to qualify for. When the student graduates from college, their parents will be responsible for repaying the loan balance.
Finally, a private student loan is another option to help finance college tuition when your federal loans, grants, and scholarships are exhausted. Unlike federal loans, though, private loans may require a pay-as-you-go model, rather than deferring payments until after graduation. However, borrowers with good credit can likely secure a lower rate on private loans because there are no fees; while federal loans, like PLUS loans, include fees. So, while private loans may be a great option for you, it is important to review the terms to fully understand repayment requirements. A private student loan with a local partner like KEMBA Financial Credit Union will help you secure the funds you need - when you need them - at a great rate and have you ready to start school in the fall. Plus, you can take advantage of a one-on-one consultation to help determine your best options.
How much should you borrow?
This is a very important question because depending on the degree you pursue and the earning potential for your future field, you need to know that you can cover the payments after you graduate. For example, if your student loan balance is $28,400 (the average balance of student loans per Smart Asset) after graduation, and you choose a 10-year repayment plan with 7% interest, your monthly payment will be around $325/month. This payment amount is comparable to a car loan payment that you may need to get to and from your new job, and when added to your monthly rent, food, utilities, and other living expenses, those payments can add up. When evaluating your student loan needs, understanding whether or not you can afford that payment after graduation is an important factor, which is why a student loan calculator should be part of your consideration process.
Interest Rates are Important
The interest rates on a student loan are similar to a car loan or a mortgage and may be fixed or variable rates. Your payment is divided in to installments, which is split between principal and interest, with the larger portion initially going to pay the interest. Over time, as you pay your student loans, the amount that goes toward interest decreases, and the amount that goes toward principal increases. Getting the best interest rate(s) when your loan payments begin will ensure that you don’t overpay on interest during the life of your loan. As with all loans, the interest type is important to understand.
Refinancing Your Student Loans
A Student Loan Refinance is one option that you can consider after you graduate. If you received a combination of federal student loans and private student loans, the interest rate may vary for each balance. Consolidating your loans into one manageable payment with a steady interest rate may be a smart move. A refinance can help you lock in a lower interest rate, give you predictable payment and pay less interest over the life of your loan, which means paying it off faster.
Borrowing with KEMBA
Whether it’s financing an undergraduate degree or refinancing existing college loan debt, KEMBA has options to meet the unique needs of borrowers. To become a member and learn more about student loan options with KEMBA, or for a one-on-one consultation to review your options, call our member service team at 614.235.2395, option 4, or visit one of our ten local branches.