Student Loans & College Debt

What do I need to know about student loans and paying them back?

There are all kinds of loans. Some lenders require that you start paying them back immediately. Others won’t send you a bill until almost a year after you graduate. When looking at a possible loan, ask about two things:

  • The interest rate: This determines the amount of money you have to pay back in addition to the amount you borrowed. You want this number to be as low as possible. Government-backed loans offer the lowest interest rates.
  • The repayment terms: This is how soon you have to begin making payments on the loan, how long you have to repay the loan, and how much you’ll need to pay each month.
How much money can I borrow in federal student loans?

The amount available in the government’s subsidized loan programs changes from year to year. Take out these loans first, if they’re offered to you. If you need more money, try to get what you need through unsubsidized loans. Be careful. Borrow only what you need. Ideally, you shouldn’t borrow more than you are offered through these two federal loan programs.

How much is OK to borrow?

This depends on a number of things. As a first step, look at the financial aid letter from the college you like the most. Will you need to borrow money to get through your first year? What about the remaining years? What kinds of loans are available to you? And what will be the total cost over four years?

Once you’ve gathered this information, it’s best to look for a “financial aid calculator” to do the number crunching for you. Most college websites have these now. The website FinAid.orghas a calculator that allows you to enter the size of the loan you’ll be repaying, the interest rate, and other terms. One example: Imagine you have $37,000 in federal student loan debt. (This is the current national average for undergraduate and graduate loan borrowers.) You will be expected to pay back about $400 per month for 10 years at today’s 5.5% interest rate for government-backed loans.