It’s Back to School Week at FFL and we’re breaking down some of the biggest issues facing students and how could we not talk about student loans? I was lucky enough to not have to take out student loans for my undergraduate career, but graduate school was a whole different story. I had to do a crash course in what the heck is a student loan? And I learned so much about my own process and what everyone MUST know before going through the process. Obviously, there’s a ton of minutia associated with student loans like individual interest rates and the paperwork you’ll sign and disbursement, but these five things are, in my opinion, the most important things a first time borrower should know about student loans.

Do you have to fill out FAFSA?

If you want to borrow money from the federal government, as opposed to a private agency like a bank, you absolutely have to fill out the FAFSA. Just like you had to fill it out to get financial aid, it is also used for student loans. The FAFSA takes your income, your parents income, your savings and business holdings, and all that jazz into account to determine how much aid you’re eligible for. Then, it will take into account your income and your cost of attendance to calculate the student loans you can take out. The student loan process requires information on both the federal and university level, but the FAFSA is where it all begins.

What type of loan will you be taking out?

Apparently, there are a lot of different types of student loans. Who knew? I won’t get into private loans right now, because frankly I don’t know much about them. There are three main types of federal student loans. There are subsidized, unsubsidized, and Direct PLUS loans. Subsidized loans are only for undergraduates. This means that the government will pay your interest for you while you’re in school, instead of letting it accrue or sending you the bill. Unsubsidized loans are available at all levels of education and don’t involve the government paying your interest. Once you fill out your FAFSA, they will tell you what type of loan you are eligible for, but keep these tidbits in mind. It is almost always recommended to take our federal loans before private loans due to interest rates.

How much of a loan should you take out?

Loans can seem like free money, which as conservatives we know don’t actually exist, but it’s important as a reminder. Often, you’ll be offered more of a student loan than you need for that semester or year’s tuition. Student loans are first paid to your institution, and then you will be given the remainder. If you are using some of your student loan money to relocate or buy textbooks, that’s important to know. However, you shouldn’t take out ten thousand dollars in student loans if you only need 3K that semester. You’ll be paying more in interest than you might expect. It’ll bite you in the butt later on.  If you’re financing your education solely through student loans, don’t take out much more than you’ll need to cover expenses for school that semester. The best thing to do is make a detailed budget and estimate what other income you’ll have before taking out the full amount of your offered loan. The government suggests not letting your monthly student loan payments be more than 8% of your income.

Another thing to keep in mind is your earning potential. Don’t borrow 100K in loans if your career field only nets 30K a year. It just doesn’t make sense.

RELATED READ: How To Go To College For Free

When do you have to start paying off your student loan?

Most student loans include a grace period of six months after graduation before you are required to start paying off your student loans. This gives you a chance to get on your feet post-grad but you shouldn’t wait if you don’t have to. For most loans, they start accruing interest right away. It is recommended that while you are in school you pay your interest monthly so it doesn’t capitalize, which will result in you owing even more in the long run. During your education, you should definitely keep an eye on your loan debt and talk to your loan provider if you’re concerned about your ability to pay. Forbearance is an option for people experiencing unemployment or other economic hardships. It allows you to put off paying on your principle loan for a short time, though interest still accrues. The moral of the story is to always pay your interest.

What will your repayment process look like?

I thought student loan repayment was a monolithic thing but I learned that everyone’s repayment process is different. Some people will pay their interest during school and pay off their student loans in less time than needed. Others will end up owing more in interest than they owned on the principal. Some employers will help you pay off your student loans, and some won’t. It’s hard to know where you’ll be post-grad until you are there, but when you’re making plans for the future, always take into account your student loan debt. Pay off more each month if you’re earning more than you expected. Look into forbearance if you experience unemployment halfway through your career. The most important thing is staying mindful of your loan, staying in communication with your loan provider about your options, and doing what works best for you and your financial health in the long run.

Aryssa D
FFL Cabinet Member