Student loan lessons learned
August has arrived, and in a couple of weeks, Jake will begin his college experience. His financing is now complete with the recent approval of his student loan. (You may want to read my previous post for background on why we chose this route to obtain additional funds needed for his freshman year.)
As I researched the various student loan lenders, I noticed that many lenders indicated that it may be possible to secure a student loan without a cosigner. After completing several applications (short and simple), I received a message from each lender indicating that a cosigner was required. That wasn’t surprising, given the current economy and the tightening of credit/loans by financial institutions.
We selected our lender, completed the online application, and then started the waiting process. Here are a couple of tips I would offer based on our own lessons learned through the student loan application process:
Timing is tricky and critical.
Obviously, it’s important to exhaust any possible scholarships and financial aid sources first. Once you have received the Student Aid Report (SAR) from your FAFSA application, you will know your expected family contribution (EFC) in conjunction with any financial aid assistance. The EFC may not be the “actual” number for your family. Do not panic! (I came close!) Has your son/daughter received any school, community or national scholarships? Keep in mind that often these scholarships have yet to be awarded by the time you receive the SAR. While the financial aid process is multi-faceted and sometimes intimidating, it is not as daunting of a task as one may think. Starting early – during the month of January – is highly recommended. Each month can add one more piece to the puzzle until the entire puzzle picture is built. For our family, the puzzle was completed in July.
Do not rely on the lender to track the application’s progress and update you.
Be aggressive (yet cordial) in calling for updates or with questions. While summer time is slow for many businesses, this is not the case with college campuses and student loan lenders. It is their peak season for financing. From the time the online application was submitted to the date when the funds were received, the process took us three weeks. It was a relatively simple process, but it did have a few flaws. For example, the loan processing house generates automatic email updates that do not necessarily reflect the application’s most current status. This was confusing. Each time we called the lender advising them that the requested paperwork had already been faxed – twice – and yet another email was requesting the same information for a third time. The automated system, along with the large volume of applications being process during July, caused occasional frustration, but it was nothing that several phone calls and helpful customer service reps couldn’t resolve.
Before completing the loan application or receiving the funds, discuss the plan for how this money will be utilized and accessed.
We have all read the horror stories or know someone who may have been negatively impacted by a student loan due to careless spending of the money or misunderstanding of the loan details for payback. After all, young people (at 18 years of age) are assuming a huge responsibility for managing a large sum of money over a period of time. We decided that the best solution for Jake was to establish a separate savings account for this money with both his name and my husband’s name on the account. This will allow flexibility in making school payments by either of them. While Jake does not need to ask permission to withdraw any of this money (his account, his money), he agreed to leave this bank account card at home, thereby making it less available for “temptation” spending and keeping the account information more secure.
I ran across a blog recently which had numerous stories – some good, most not-so-good – from students who had borrowed money for college and were now in varying stages of paying it back. In typical fashion, most people who took time to write had experienced something negative. It struck me while reading through the blog that this should be “required reading” for students (and parents) prior to submitting a loan application. Was it scary? Yes. It was also raw information coming from those who are now on the payment side of the student loan – which is a good reminder to students that this money is in no way “free.” A $10,000 loan translates roughly to $25,000 in re-payment. It’s important to give students a reality check when considering student loans. I have passed the link along to Jake for reading. If you’re interested, you may read it online, too.
Student loans are a great resource option for college, depending on a family’s specific financial situation. I benefited from them as a financing option for my college years, and now Jake will. As consumers, though, we must educate ourselves about today’s student loans and lenders like we have educated ourselves about many other products and services (e.g., computers, cell phones, travel arrangements, health care, etc.).