It's an exciting time of year for high school seniors, who, in addition to getting everything secured to graduate, are also cementing plans about what they're going to do come fall. Continuing on to college is a likely option and one that has been wildly growing in popularity over the past few years. Watching young family members head off to tour college campuses brings me back to more than a dozen years ago when I was in similar shoes. I was so enamored with the idea of my college experience that I wasn’t thinking about any of the financial details. Frankly, it didn’t seem like something I had to worry about at the time, so why kill my educational buzz? Additionally, I was confused and overwhelmed by the paperwork as was my mother, who was struggling with her own finances at the time.
Though the student debt crisis has considerably worsened since then (now topping 1.48 trillion and likely to increase as universities get even pricier), it looks like misconceptions still abound. A new survey by Student Loan Hero (SLH) found that 52 percent of borrowers think interest doesn’t accrue while they’re in school, 53 percent think student loan payments are automatically based on their income and roughly 70 percent are misinformed about student loan forgiveness. It all begs these questions: How do student loans work and how can parents and students make the best choices when venturing down that prickly path?
FIRST, REACH OUT TO YOUR SCHOOL COUNSELORS AND USE A STUDENT LOAN CALCULATOR
“I would recommend that high school students and their families speak to their school counselors for guidance on the financial aid and student loan borrowing process,” says Rebecca Safier, financial expert at SLH. “Your college financial aid process can also offer help and information.”
“Our dashboard and calculators are also really useful tools for tracking your balances and monthly payments and coming up with a strategy for repayment,” she adds. Note: repayment is designed to span 10 years, or 120 payments, and includes interest.
FILL OUT THOSE FEDERAL GRANT FORMS — YOU MAY GET SOME FREE MONEY
The first thing any prospective college student needs to do is to find out if they qualify for any federal grants by filling out a FAFSA form. You’ll also need to fill this out to qualify for a federal loan (which we break down below).
As Brianna McGurran, student loan expert at NerdWallet explains, federal grants are based on financial need, so if you and/or your family is in a low income bracket, where you can provide little or no payments for college, you can qualify for a Federal Pell Grant, “which is worth about $6,000 a year,” says McGurran. (Read More...)