They say write about what you know. I KNOW student loans. I figure that by the time my daughters are in college, we will have paid off most of my student loans.
Post secondary, I attended community college, a Big Ten University, and private law schools. I’ve paid, and continue to pay, for all of them. I’m not bitter about it, and I don’t intend to wade into the politics or social policy of student loans.
The simple truth is that I couldn’t totally afford college out-of-pocket, and I chose to borrow. In turn, borrowing and paying student loans played an active part of my financial education.
At first glance, student loans appear to be a matter of math; but the whole process requires A LOT of communication. Whether you are borrowing for/to your kids, considering going back to school and borrowing for yourself, or woefully paying off your student loans (in good company), this post is for you.
Borrowing for your kids. Parents of undergraduate and graduate students may be eligible for PLUS loans. Many private institutions also offer student loans for parents, and some schools offer their own loan programs for parents. Things to consider include the number of years your child will be in school and the number of kids you have. Also, while students have a variety of repayment options, detailed below, know that some of these options are not available to you as a parent.
In addition to traditional student loans, another idea is to consider a home mortgage or equity loan. Similarly, you can borrow against your 401K account. Just remember that these strategies may be riskier given that the collateral for these loans is your home and your retirement.
Borrowing to your kids. If you are in a position to do so, you can put formal loan terms on paying for your child’s education. These are called intra-family loans. Intra-family loans may be an appealing way to guide your child’s financial education; but beware that these loans can have major tax implications and could cause major intra-family stress. Definitely consult with a tax adviser before drafting the promissory note.
Borrowing for yourself. First and foremost, consider making friends with your school’s financial aid office. Don’t be shy, your tuition pays for their services; but treat them. Bring them cookies or bars. You will have many financial aid questions, and kindness is contagious. Plus, you may need their help again later, and it’s nice if they remember you.
In borrowing for yourself, you can choose to borrow from a private institution, like a bank; or the federal government. The key difference is that the latter is regulated. In my subjective experience, I favor student loan regulation because there tends to be more transparency and I know what my rights are.
When borrowing with the federal government, there are two major types of loans: Stafford (unsubsidized and subsidized) and Perkins. For more information, start here.
A subsidized Stafford loan means that the government pays the interest while the student is in school. Perkins loans are only for students with an exceptional financial need and not every school participates.
Paying your student loans. Repaying student loans can feel miserable, but there is relief (wahoo!).
- There exist loan forgiveness programs
- There are income-driven repayment plans
- You can consolidate many of your loans
- You can also defer your loan payments for a variety of reasons, such as maternity leave
And yet, these strategies are not for everyone. You may prefer to pay off student loans as quickly as possible through an aggressive budget, making more than the minimum payment, applying bonuses and raises, etc. Talk to a financial advisor about which strategy is the best for your household.
If you borrowed with a private institution, talk to a specialist with that entity about your repayment options. Even if you don’t have questions, it is wise to communicate with your lender.
In that same vein, loop back with your school’s financial aid office. If you’re lucky, they might remember you (or your cookies). Your school’s financial aid office should be able to help you identify resources and strategies for repaying your loans.
In conclusion, whether you are borrowing or repaying, for yourself or for your child, check out the hyperlinks available above and educate yourself about the many borrowing and repayment options available to you. And talk to others: your school’s financial aid office (even if you are now alumni) or representatives from your lender. Finally, consider talking to a financial advisor; he or she will bring you more peace of mind than your degree – ours did.