The Basics of Borrowing for CollegeThe Basics of Borrowing for College

The Basics of Borrowing for College

The numbers are in—and they’re not pretty. The U.S. Education Department recently reported that the total amount of money borrowed by students and received by schools in the 2008-09 academic year grew about 25% over the previous year, to $75.1 billion. Students these days are borrowing lots of cash to pay for college. Here are some things you need to know about student loans:

1. Educational loans are just that—loans that must be repaid with interest. Make sure you research interest rates and find out info on interest subsidies, during which time you may not have to pay interest on the loan. Federal loans have the best interest rates. Applying for a student loan is literally at your fingertips. File for the Free Application for Federal Student Aid (FAFSA) at the U.S. Department of Education Website. Check out http://studentaid.ed.gov/PORTALSWebApp/students/english/fafsa.jsp for lots of info.

2. Loans come in different shapes and sizes, from the federal Perkins Loan to New Jersey’s NJClass. Check out the different types at New Jersey’s Higher Education Student Assistance Authority, http://www.hesaa.org/index.php?page=student-loans.

3. Student loan debt can drag down your lifestyle for years to come. Borrow conservatively—never more than you need.

4. You suddenly came into some money and want to put it to good use. Great! You may prepay your loan, in whole or in part, at anytime without penalty.

5. Sorry, dissatisfied customers don’t get a break. You must repay your loan, even if you do not complete the academic program, or may be unhappy with the education you received, or are unable to find employment after graduation.

6. You can run, but you can’t hide. Always notify the holder/servicer of your loan immediately of any changes to your name, address, telephone number or social security number. You must also provide notification if you withdraw from school, drop below half-time enrollment, transfer to another school, fail to enroll, or re-enroll in school for a period which the loan was intended, graduate or change your expected graduation date.

7. Remember the “rule of 125.” For every $10,000 borrowed in student loans, your monthly payment will be approximately $125 per month.

8. Keep copies of your student loan paperwork in one place.

9. If you have several different federal loan payments and you want to make just one, you can apply for federal loan consolidation.

10. Even loan officers have a heart—sometimes. If you are having trouble paying your loan, you may be eligible for a deferment or forbearance, which temporarily postpones or lowers your payments.

11. You hate getting a “D” in school. You definitely don’t want to get one stamped on your loan agreement. Defaulting on a student loan, basically not paying it back, will damage your credit rating and lead to all kinds of other problems, from the seizure of your checking/savings account to limiting your ability to get a job.