Responsible Borrowing

It's that time of year when students are getting ready to finalize their plans for paying their college bill. Most will find it necessary to borrow loans to pay for their college education.  Borrowing can be considered an investment in oneself and may make sense.  The key is to borrow responsibly!  Here are some tips for students to help them borrow wisely.

1.     Maximize your grant aid

Complete the FAFSA and continue to do so EVERY YEAR that you are in school.  Be sure you continue to meet deadlines so that you receive the maximum amount of grants and scholarships.  Continue to apply for private scholarships and ask your school if they have scholarships that require a separate application.

2.     Borrow only for direct costs

Limit borrowing to cover only tuition, fees, room and board, even if your school offers you the opportunity to borrow for other expenses. Use summer, Work-Study and other earnings to cover your books, supplies, travel and other expenses. Establish a plan to ensure that you are saving enough of your earnings to cover these expenses throughout the year.

3.     Know your earning potential

How much can you expect to earn after graduation? Ask your school's alumni office, or visit career websites to find this information. Once you have an earnings estimate, visit FAME's website and use the salary and debt wizard to determine how much debt is reasonable for you. Keep track of your total debt, and the corresponding monthly payment, as you continue through school.

4.     Borrow federal loans first

Federal student loans, Direct Stafford and Perkins Loans, typically have better terms than all other education loans. Avoid borrowing private or alternative education loans, if possible. Some private loans offer a low interest rate in the beginning, but the rates can increase over time and the repayment and deferment options are less flexible than with federal student loans. Additionally, these loans cannot be consolidated with federal student loans.

5.    Develop a budget

Have a budget plan and update it regularly. Be sure you are "living like a student" and not using loan funds to cover expenses that are not critical to your education. Regularly evaluate your housing, travel and personal expenses to make sure you are cutting your expenses when possible. You'll be so glad you did when it's time to repay your loans.

Research shows that obtaining a college degree does pay off!  Adults with a bachelor's degree earn over $1M more in their lifetime than someone with only a high school diploma. Borrowing to help achieve this goal makes sense for many students. The key is to be an informed consumer and remain actively involved in loan decisions all the way through your college career. Call us at FAME - we can help!