Funding

Sizing up student loans

Picking a college is hard enough.

Do you go to the school with the best academic program, or the one that will finally give you easy access to a Chick-Fil-A?

What about living?

Do you take your chances in the dorms, or go straight to your plan of turning a refurbished school bus into a makeshift studio apartment?

There are a lot of small details that will take up plenty of time and headspace to figure out. But one decision that should fall into place no matter what is picking the right student loan option. And don’t get me wrong, I understand that it’s tough to make sense of the ups and downs of each option. specifically about the different types of student loans available, as well as help understanding private loans.

Beyond understanding the types of loans, it’s important to understand the features of each loan. Knowing how much you can borrow each year, when you have to start repaying your loans, and the details on how much is going toward interest can impact the path your life will take after college.

“It is very important for students to understand their loans and develop a plan for student loan borrowing and debt,” said Sue Downing, a senior vice president at Inceptia, a nonprofit organization dedicated to higher education access. “Unfortunately, many students are unsure about their student loans.”

Downing points to research that shows how drastic the issue of uncertainty runs. According to studies, 94 percent of student borrowers do not understand their repayment terms, and 48 percent didn’t even know exactly how much they’d borrowed. These are simple facts that go unchecked by a surprising number of students. Then there’s the fact that 28 percent of students think they have no federal loans, when in fact they do.

“The ramifications for these misinformed choices can negatively affect students, schools and society at large,” she said, “as issues of over-borrowing, degree attainment, and loan default have a ripple effect on the health of the national economy.”

It’s clear to see why Downing believes that understanding the basic terms of your loan is such an important step.

READ More: How these students made college possible

Surveying the ‘Field’

Understanding your student loan options can also be vital in figuring out what type of degree to pursue.

Federal loans are available for both undergraduate and advanced degrees, but the Department of Education recently stopped subsidizing post-grad opportunities like medical school. Private loans are available for all levels, and unlike federal loans, can be refinanced and repackaged in ways that can help students after graduation.

Laura Danielson, who is approaching her final year of residency, also said that a lot of students turn to family options, even in medical school. If family isn’t an option, Danielson said a lot of students will turn to federal loans, then private loans as an “end of the line” option.

Dental school is another route that comes with a high cost, and Kaylee VanLaecken said those costs keep students from dwelling on the details of loans and repayment options. It’s another field where students can utilize unsubsidized federal loans to be able to defer payments until after graduation, but VanLaecken is already making plans.

She said that she and her husband plan on consolidating loans after graduation, as well as living “lean” for a few years out of school to start saving.

VanLaecken’s situation brings up an interesting twist: Although federal student loans cannot be refinanced, private loans are available to either consolidate or refinance existing loans, and can be a viable option if it makes financial sense. But private loans do not have the same flexibility as federal loans, such as the ability to defer payments if you lose a job.

It can be risky.

It all comes down to understanding your options, and how they fit into an individualized financial plan.

So what is refinancing, and how does it affect your options for student loans? The answer to those questions lies in the often underestimated aspect of student loans–interest rates. We could spend a whole article on interest rates alone, and we did, but the important aspect to know is the rate itself, and the terms for repaying the interest.

A higher rate will obviously lead to a larger repayment on your loan–the amount you have to borrow is the cost of tuition and expenses, plus the interest it will accrue. So to pay for school, it takes more than simply covering tuition and living expenses. It’s also important to understand how the interest needs to be paid. Students with financial need can qualify for federal loans that are subsidized, meaning the government pays interest payments while a student is in school.

On the other end of that spectrum, some private student loans require students pay back interest while still enrolled in classes. It just depends on your loan, and your terms, so it’s important to note all of these details when gathering information about student loan options.

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