Guide to Borrowing Money for School

One of the most expensive mistakes you can make as a borrower is borrowing too much. In fact, your goal from the get-go should be to minimize your overall borrowing. In order to do so, you need to know the exact amount of money you’ll be spending through your academic year. Answer these questions and crunch the numbers:

questions and answersWhat are your total college expenses?

Check your award letter for the “total cost of attendance.” This will usually include tuition, room, and board. Add to this the cost of incidentals, such as books, travel, cell phone, any rental expenses, computer supplies, etc. This is the total amount of money you need, but be careful not to include incidental expenses that aren’t necessary, like a new TV for your dorm room.

Subtract any “free money”
Free money includes any of the following: scholarships, grants, including Federal aid like Pell grants, merit awards, tuition waivers, etc.
Subtract other aid and disposable savings
This includes work-study, savings, summer job income, and current income—anything you can afford to contribute. If your family, friends, or relatives want to pitch in, include their contributions here.
Subtract all other possible sources of cash
Get creative. Maybe it’s time to sell some things on eBay. Or cash in savings bonds or CDs that have just been sitting there.
Revisit your original budget and see what you can cu
It’s all about finding savings and subtracting them from your budget. A cheaper cell phone service, no cable, or taking the train or bus home instead of flying can put a large dent in your future debt. But don’t discount the daily expenses. Limiting coffee purchases and other retail treats can save literally hundreds of dollars per month. It’s college. Be hard on yourself and develop the financial habits that will help you for the rest of your life.

The number you have here is the amount you need to borrow.

To cover what you owe, take out cheap loans first

That usually means federal student loans, which tend to come with lower rates and more lenient terms than private alternatives. All you have to do is fill out a FAFSA (Free Application for Federal Student Aid, available at www.fafsa.ed.gov). The application is always available January 1st for the following academic year, so fill it out as soon as you can if you haven’t already. The earlier, the better.

pros and consCompare private loan costs before you apply

If, and only if, you have borrowed all the federal loans you can access for the year and there’s still a gap between what you have and what you owe, consider private student loan options. They are not all alike, so it pays to compare first payment due dates, interest rates, rewards programs, and other incidentals. This all contributes toward a repayment situation that will meet your personal needs. But remember: only borrow one year at a time.

Keeping track of what you borrow

Students, on graduating from college, often find themselves taken aback by the amount they borrowed for their education. And sometimes they find themselves lost on the path toward paying it back. At SimpleTuition, we think the best start is an educated start, meaning you should always know how much you’re borrowing while you’re doing it. That way you can better manage it when it comes time to pay it back. Here’s how:

 

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