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:
What 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”
Subtract other aid and disposable savings
Subtract all other possible sources of cash
Revisit your original budget and see what you can cut
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 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.
Compare 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:
- Gather loan details each year. At the end of each school year, you should pull together and review your loan details. That means loan servicer, contact info, total loan amount, interest rates and first due dates.
- Keep a spreadsheet of all student debt and Update it yearly. Once you have completed step one, put this information together into a spreadsheet and keep track of it on an annual basis.
- Plan for your first payment date. You must make payments on your loans even if you don’t receive an invoice or coupon book, so be sure you have the pertinent repayment dates and amounts in a safe place. Also, plan ahead. Know where your money is coming from before you need it to make your payment.
- Notify your loan service provider when: you graduate; withdraw from school; drop below half-time status; change your name, address, email or phone number; or transfer to another school.