You’ve committed to a college and celebrated your decision! Now you may be asking yourself: How am I going to pay for this?
If student loans are part of your plan, it’s easy to get frustrated.
There is a lot to consider, multiple steps to take, and big changes to monitor.
It may be tempting to just click “accept” for whatever your college’s financial aid office offers and hope for the best. Resist that temptation.
Student loans can help you pay for college, but they are a big commitment that follows you for years after graduation. It’s important to fully understand the loan process and your long-term obligations once you borrow money.
Start with the basics by reading our fast facts below. Then learn more from our friends at College Money Matters, a terrific website for students and families.
And when you’re ready, explore our many resources to become an expert on student loans.
Student Loan Fast Facts
1. You don’t need to be low-income to get a federal student loan.
Federal loans are available to any student who fills out the FAFSA regardless of their family’s income. This is good because government-backed loans are cheaper and more forgiving than student loans on the private market.
2. You don’t get the money from the loan — your college gets it.
Student loan disbursements typically go straight to your college to cover tuition, fees, and housing. You’ll never see the funds directly. If you are taking out a loan to pay living expenses or other college-related costs, the lender still sends the loan proceeds to your school. You’ll, in turn, work with your college to arrange for them to issue you a refund for the amount you intend to apply to living and other expenses.
3. Student loans can be costly.
All lenders charge interest. This means you pay back more than you borrow. Let’s say you borrow $5,500 — a typical amount for a first-year student taking out an unsubsidized government loan. If you take ten years to pay it off at the current 6.53 percent fixed interest rate, you’ll actually repay $7,504. That’s $2,004 just in interest.
4. Calculators are important.
Don’t try to figure this out in your head. There are lots of terrific loan calculators available. A basic calculator like this one at Calculator.net can help you figure out loan costs. Other calculators can help you estimate monthly payments based on your major, career path, and loan amount. We are fans of Federal Student Aid’s Loan Simulator for government loan options and Student Debt Smarter to help you calculate how much debt you can safely take on.
5. Your interest rates may change each year.
This is especially true in the current market. Interest rates have been fluctuating a lot. What does this mean? The interest rate you sign up for as a freshman may not be the same rate you are offered as a sophomore.
6. You apply for new loans each year (if you need them).
Loans are awarded annually. And they’re usually disbursed in two parts: half in the fall, half in the spring. You will need to fill out the FAFSA each year to get government loans for the following school year.
7. Government loan offers don’t roll over — you use them or lose them.
If you skip a loan in your sophomore year, you can’t “save it up” and borrow extra in your junior year. The government sets annual limits for how much a student may borrow.
8. Graduation may take longer than you expect.
About 60 percent of students need five or even six years to complete a bachelor’s degree. That means more semesters, and often, more loans. There is also a significant number of students who don’t complete their degree at all. Keep this in mind as you think about how much debt you can afford.
9. It may take a long time to pay off your students loans.
Student loan debt is no longer a young person’s challenge. People in their 30s, 40s, 50s and even 60s are carrying a lot of student debt, according to the latest government figures. Borrow wisely so you can pay off your student loan debt as quickly as possible.
10. Be aware that the student loan system is changing.
We saved the most important item for last. Congress is working on an overhaul of the student loan system. Students will feel the effects of this over the coming years. If you or your family are considering student loans, be sure to watch for changes in how much you are allowed to borrow and what might be available to you in loan forgiveness.
Nancy Goodman is founder of College Money Matters, a nonprofit website helping students and families maximize their college choices and minimize their college debt.