College Expenses: How to Survive Tuition
I learned the hard way.
I didn't quite realize what student loans entailed and learned so many things along the way that I wish I knew beforehand. I'm here to tell you all the things I wish I knew, so that hopefully you don't go through what I did.
Planning to go to college? Face it – you'll probably have student loans...
For you to pay for your college years, you'll need to receive scholarships, grants, financial aid, or – good luck – pay out of pocket! The most common solution is student loans.
A student loan is designed to help you pay your way through school even though you may not have the money to do so right now. Maybe your state covers full tuition for undergrads at state schools. Well, in addition to tuition, a student loan could also cover the cost of books, supplies, room and board, and even school-related travel and study abroad.
Student loans can range from a few thousand to tens of thousands of dollars – if not more! Private schools typically have higher tuition costs compared to state universities or community college, but tuition isn't your only expense. The cost of living can vary greatly from one setting to another. Just consider the difference between an average apartment in a small town and a small modest space in NYC. Naturally, you'll need to factor in other funds like grants and scholarships, too, but the lower your tuition is and the lower your cost of living, the lower your student debt will be.
It's important to do your research before applying to lenders, because student loans are very different than your standard personal loan or auto loan. Also, each lending company has different perks, interest rates, and fees. I made the mistake of not doing my research and applying for a loan with an insanely high interest rate, which I'm now regretting.
Here are some steps to help you along your process and, hopefully, avoid some of the trouble I faced when trying to finance my own education.
Step 1: Fill out a FAFSA
The very first thing you want to do is talk to the financial aid advisor at your school. You can do this by making an appointment and they will walk you through everything you need to know about your financial aid.
Next, fill out a FAFSA form – the Free Application for Federal Student Aid. Assuming your parents are in the mix and helping, you'll need both your and their income and tax information for the last two or three years, which will determine how much financial aid you receive for the year. Depending on your parents' income, you may be quoted an estimated amount of aid you can receive for free, as federal grants, or you may only be approved for loans instead of grants.
Just a word of advice, filling out FAFSA forms is very time consuming. Plan to dedicate a good portion of your day to this – maybe estimate an hour to collect the necessary information and an hour to complete the application if you're filling it out online. If you've got the paper FAFSA, you're going to need closer to 3 hours to complete it. Then, once you submit it, you'll be waiting a few more days for your application to be processed. You're not entirely on your own, even if you don't have parental assistance. Reach out to your financial aid advisor and they can point you in the right direction.
Step 2: Choosing Federal vs Private
It's important to learn the difference between federal loans and private ones.
Federal loans are usually awarded to you based on your FAFSA information and funded by the federal government. Federal loan payments are not due until after graduation, typically with a fixed interest rate. The best perk of a federal loan is that there's no credit check, so your credit won't be impacted when you apply for it.
Private loans, on the other hand, are a little trickier. Private student loans are not funded by the government but by – you guessed it – private institutions! To get a private student loan, you'll need to do your research and apply for them separately. They are not part of your FAFSA. Private loans typically have a variable interest rate, and some may require you to start making payments while you're still in school. Unfortunately, private student loans do require a credit check during the application process, so this will be something for you to consider.
That's why many people try to stick with federal student loans. If these loans do not cover your whole expense, apply for a private student loan, but only apply for what you need. Calculate your expenses and only ask for that number, because you don't want to pay any additional interest. Think about your books, room and board, tuition, and even gas expenses driving to and from campus. You might even find some loan companies offer a line of credit, which you can pay down and access for additional funds as needed throughout your education.
Be mindful of taking only what you need, and if you can, start making payments while you're still in school or save funds to help you with those first loans payments after you graduate.
Step 3: Understanding your Loan
Once you apply for a loan, expect to hear back in a few days.
If you're approved, the lender will send the funds to your college first. Your school will put that money towards tuition and fees, and then refund you the rest of the money. Make sure to understand whether your loan disbursements are per semester or per year, so you can plan accordingly.
On top of the principal you take out from each lender, you'll have to pay interest, too. Interest is attached to your loan sum and calculated as a percentage of the unpaid loan amount, meaning that it varies with each institution and loan. The lower the interest rate, the less you'll have to pay over time. You should also understand whether your loan has a fixed or variable interest rate, which will be clear when you receive each loan offer.
Step 4: Understanding Post-College
Depending on which loans you choose, you may be required to start making payments immediately after graduation or after (the quickest) six months (of your life), called the "grace period."
Let's face it – it's scary!
Know the payment terms for your loan, because they're all different. You'll be given an amount that you're required to pay monthly at a certain interest rate. The terms will also tell you how much time you have to pay off the loan – usually depending on the depth of the loan. To make your life a little easier, I recommend setting up automatic payments, so you don't have to worry about remembering each month.
If the payment seems to be too high or too much, you may be eligible for income-based payments, refinancing, or loan forgiveness. More often than not, your financial institution will want to work with you to ensure you're able to make those payments, so don't worry too much. Contact your lending institution or local credit union to explore these options.
With income-based payment plans, your monthly payment could be lower if you have a low income, so this may be an option worth exploring.
Refinancing is also available, where you can apply for a lower interest rate or debt consolidation to reduce your payments or extend the duration of your loans.
Depending on your job and your loan, you may also be eligible for loan forgiveness. Your federal loans might qualify for this option if you work full time in a not for profit or public sector position for more than five years. However, there's a lot of political debate around loan forgiveness policies and financing higher education, so keep doing your research and don't overlook a great opportunity that may set you up for financial success!
We'll all have different experiences, but I hope this prepares you a little more than I was. My biggest advice: fill out the FAFSA twice a year, do your research, and make your payments. Lastly, enjoy your college years while you can!
Emily E.
