For those new to the college loan process, thoroughly explore funding options, know the rules and spend wisely. That advice comes from student financial aid and financial planning professionals. I reached out to them in the wake of President Biden’s executive order forgiving federal college student loans that millions of borrowers have struggled to pay.
Resist “the temptation to borrow as much as is available to you,” said Matt Zarris, associate director in the Office of Financial Aid at Governors State University. He thinks that’s part of the reason there is over $1.7 trillion in college student loan debt.
If you need to borrow, borrow only what you need, and first pursue grants, scholarships and other college funding opportunities, advisers say.
Make sure you are borrowing responsibly and spending wisely, Zarris stressed.
“When we talk to students at orientation events and at open house events about financial aid, we always want to drive home the point that financial aid is for educational expenses,” he said.
That includes for tuition, fees, books, on-campus housing and meal plans, transportation for commuting students and help with utilities and rent, Zarris said.
Anthony Harris, financial adviser and owner of Orland Park-based The Harris Group Wealth Management, recommends students planning to go to college first complete the Free Application for Federal Student Aid Form, known as FASFA, even if they don’t think they will qualify for federal loan assistance.
“Folks may not believe that they will qualify for any financial aid, so they won’t bother with completing the FASFA, which is needed to not only qualify for federal financial aid, but also will help with work study programs and grants. Bypassing that and going straight to the private loan environment is one of the mistakes people make.”
The FAFSA form allows students to request federal grants, work-study and loans in one application. Beginning Oct. 1, students can apply for the 2023/2024 school year.
Harris said to learn about scholarship and grant opportunities high school seniors shouldn’t neglect meeting with their guidance counselors.
This school year, in the Federal Pell Grant program, grants of up to $6,895, open to students enrolled in a U.S. undergraduate course who are from low-income families, are helping students cover the cost of their education as are $7,200 grants from Illinois’ Monetary Award Program.
“Right there off the bat, that’s $14,000 students can receive if they qualify for the full amount of Pell and MAP, Zarris said. That’s free money that covers quite a bit of tuition.”
Grant maximums can change yearly.
Those who need to take out loans, should be aware of the interest rates and whether they are fixed or variable, and if variable, what is the range, Harris said, warning “if rates are increasing, and you are in a variable rate loan, that could be problematic.”
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Potential borrowers also need to know:
* When loan repayments start.
* If the loan can be paid back while they’re in school.
* What the penalty is if you are late on payments.
* Who is servicing the loan.
* If you’re going with a private lender, is the company reputable.
“Make sure you’re borrowing federal loans first,” said Zarris. “There are private loan opportunities out there, but private loans are going to carry higher interest rates more often than not.”
He added federal loans also have better repayment options than private loans.
“Federal student loans have repayment options such as income-based repayment plans or income-driven repayment plans where they take a lot of information into account like how much you borrowed, how much you’re making,” he said “If you’re married, they are going to look at your spouses’ student loan debt. If you have a family, they are going to look at your household size.”
Those variables will be taken into consideration in determining the monthly payment on federal student loans. Private lenders don’t take those variables into account, he said.
Zarris and Harris also advised potential borrowers to look at the type of degree they are seeking, the jobs available and salaries in their desired fields, and factor that in when deciding how much student loan debt to take on.
Consider, if you have the means to realistically pay back the loan, how will it impact your budget, what do those monthly payments look like and what is the impact on cash flow, Harris said.
“Folks are really surprised when the repayment switch gets turned on and that’s not incorporated into their budget, so that’s one of the biggest mistakes,” Harris said.
Student loans shouldn’t be looked at negatively, Zarris said.
“They are a part of the financial aid equation,” he said. “They are there to help bridge the gap. If a student doesn’t qualify for enough grant money and scholarship money, student loans are definitely going to be helpful for students to get across the finish line. That’s really the ultimate goal, to get across the finish line, to get that degree, and go out and pursue a career where you’re able to support yourself and your family.”
But, he warned, if you don’t make it to the finish line, “unfortunately there’s not a lot of return on that investment.”
More information on federal student aid is with the federal Department of Education at studentaid.gov.
Francine Knowles is a freelance columnist for the Daily Southtown