The Current Student Loan Situation
It’s fair to say the student loan environment has…and I believe this is the technical term…gotten completely out of control.
As of 2019, total student loan debt sits at about $1.6 trillion—exceeding total auto loan debt (almost $1.2 trillion) and consumer credit card debt (nearly $1.1 trillion).
Also, as US wages stay stagnant and the cost of attendance at colleges continues to outpace inflation, student loans will continue to play a major role in college financing.
So, here are some tips on what to consider and how to bolster your own information with online tools.
Quick Start Guide for Student Loans
1. Consider how much you will need to borrow. You can do this by completing these steps:
- Meet with your family financial advisor or CFP® to begin “drawing a line in the sand.” Get an idea of how loans you will factor into your college funding.
- Understand the cost of attendance at your desired schools (i.e. your cost all in, not just tuition).
- Fill out the FAFSA and CSS Profile.
- And lastly, a good general rule of thumb: Make it a goal to graduate college with less total debt than your first year’s starting salary. For example, if you believe your first job will pay you $50,000 per year, try to graduate college with less than $50,000 in debt.
2. Evaluate the different attributes of public vs. private loans and which might be more beneficial for you. Public loans (loans through the government) and private loans (loans through private financial institutions) can have vast differences. Getting a good comparison chart of public vs. private is something you want to do early in your research. Here’s a decent one.
3. Compare loans by analyzing loan attributes before committing to one. Loans are pretty complicated financial products and there are many different factors to consider. Here is a list of loan components you will want to focus on:
- Repayment terms
- Interest rate
- Tax Deductible?
- Prepayment penalties
- Will you need a co-signer?
- Lender Reputation
- Repayment flexibility: Is the loan eligible for forgiveness programs? Can it be consolidated with other loans in the future?
4. Verify your loan by placing it in conjunction with the rest of your financial plan. In short, you can have a great loan in a vacuum, but it may not be effective if you haven’t considered it alongside the rest of your college funding plan.
Online Resource for Student Loans
While there are many websites dedicated to this space, I find that www.SimpleTuition.com is a great online tool. On this website, you can do the following:
- Read definitions
- Compare loans
- Find lenders and be directed to their websites
- Read helpful content to sort out FAQs
- Refinance loans
Student loans are likely here to stay for a while and will be a part of college planning for most families.
First, seek to understand what role student loans will play for you.
Then, compare types of loans and loan attributes.
Lastly, once you are comfortable with what your loan/s might look like, place it/them alongside the rest of your college planning and see how the comprehensive plan works for you.
Please enjoy the rest of this article series on How to Utilize Online Resources for College Planning, and if you have questions, please ask!
Part 1: How to Research Scholarships
Part 2: Utilizing the College Board Website for Research
Part 3: College Planning Alphabet Soup – FAFSA, CSS, EFC, COA
Part 5: How to Check Your Admissions Probability for College
Part 6: Endowments: Finding Where the Money is
Part 7: Educating Yourself When It Comes to Paying for College
Erik Fischer, CFP
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