Americans are more burdened by student loan debt than ever, with the average graduate in their 20s making $351 a month in student loan payments. Suggested changes to the federal student loan program could have even more college students questioning just how much student loan debt they want or can afford.
As part of its overall budget plan, the Trump administration would like to eliminate current provisions in which the government pays the interest on student loans taken out by low-income students while the borrower is still in school and for six months after graduation.
The Trump administration is also proposing to end the Public Service Loan Forgiveness program. This program allows borrowers who go on to work for the government or for nonprofits to have the remainder of their federal student loans forgiven after they make 10 years of payments.
Even though these potential changes might never be signed into law, just the possibility of such changes makes it even more important for students to ask the right questions before they take out federal or private student loans.
Here are six questions you should ask before signing up for any student loan.
1. Have you considered all education options?
Your first-choice school might be the most expensive university on your list. You might be able to reduce the amount of money you borrow each year by choosing a less costly option.
Instead of attending a private college, you might investigate a public university. Instead of going to an out-of-state school, you might consider going to school in-state, which comes with lower tuition. You could also attend a community college for two years before transferring to a private or public university for the remainder of your college years. These choices could reduce the amount of student loan debt you’ll have to take on.
2. Can you cut out room and board?
The College Board reported that the average yearly cost of room and board at a public four-year university stood at $10,440 during the 2016–2017 academic year. You can save that expense if you attend a college that allows you to live at home while taking classes.
Yes, you will lose out on some of the traditional college experience. But taking on less student loan debt might be an acceptable trade-off.
3. Are you borrowing too much for your potential future income?
Certain careers pay more than others. You need to remember this when applying for student loans. You don’t want to take on huge debts if you expect to make $40,000 a year when you graduate. But taking on larger amounts of debt might be a solid financial choice if you are working toward a higher-paying degree.
4. How big of a student loan payment are you willing to make once you’re working?
Borrowing money might seem easy when you’re still in school. After all, you’re probably not making payments on these loans yet. But once you’re out in the working world, that student loan debt won’t seem so benign.
You will have to make payments each month. And these payments will come in addition to rent, car payments and, eventually, mortgage payments. Student loan payments become a huge financial burden to many. Before borrowing today, you need to consider how comfortable you’ll be making those payments in the future.
5. Are there other types of financial aid available?
Before applying for a student loan, make sure you explore all financial aid options with your high school counselor, or the university you plan to attend. Many universities offer merit scholarships to incoming students. You usually don’t have to apply for these scholarships. Schools automatically provide them, usually based on your academic performance. Even if you’ve been offered one, you might be able to persuade your university to provide you with a larger merit scholarship, especially if you are worried that you won’t be able to afford the yearly tuition without financial help.
There are other types of scholarships, too, that you should investigate. The U.S. Department of Education says that there are several ways for college students to search for scholarships and grants. They should first speak with the financial aid office at the college they are attending. These professionals often have tips for hunting down scholarship and grant money.
They can also use the free online scholarship finder offered by the Department of Education. The department also offers an online list of state grant agencies that students can search to find scholarships and grants in their states.
Call your school’s financial aid office to discuss options such as work-study programs and possible additional financial help.
6. Can you get by without private loans?
Even if you get grants and scholarships, you may still need student loans. There are two types of student loans to consider: Federal loans offered through the federal government or private loans offered by private lenders. Federal loans are preferable because they usually come with lower interest rates and more flexible repayment programs. Federal loans also provide more options if, after graduating, you find yourself struggling to make payments, including deferment and eventual forgiveness programs.
It’s far better to rely as much as possible on federal subsidized or unsubsidized student loans. The challenge is that these federal loans have limits; you can only borrow so much each school year.
Your school might also offer its own lower-interest loans that would be cheaper than private loans. But if these options still aren’t enough, you’ll have to determine whether taking out less attractive private student loans to attend college is worthwhile. It might be the only option.