The First College Lesson: Student Loans

Summer Money School Is In For Rising College Freshmen

The high school graduation season is just about over, so now it is time to begin thinking about the next big step in your student’s future - attending college. By now most graduates have selected a college, and are deeply engrossed in the process of decorating their dorm room. It may seem like classes don’t begin for a few months, but there is one crucial lesson that must be covered by parents during the summer between high school and college.

That lesson focuses on the importance of proper student loan management.

This crucial course could save your student from the perils of over-borrowing, the tragedy of over-spending, and the pitfalls of excessive debt. The perils of mismanaging these loans can be seen in the high debt load being reported in the media today and the number of graduates struggling under the weight of their monthly payments. To avoid these missteps in your child’s future, here are a few key points to include in your Student Loans 101 curriculum:

Federal or Private - It Makes a Difference 

Student loans come in all shapes and sizes, and it can get confusing. It is important, though, to take the time to learn about your options so that you make the best choices right from the beginning. The first borrowing path is through federal student loans, as they usually have better interest rates and payment terms. If you borrow the maximum amount available in student and parent loans, you will then need to research the possibility of private student loans.

Always be sure to study payment information carefully and only deal with a reputable lender.

Become a Seer of the Future

Wipe off that crystal ball to do some gazing into the future. Use graduation rates and employment statistics from your student’s college to predict earning potential after graduation.

A college degree will probably enable your student to realize a bump in future earnings, but don’t put an excessive strain on that projection by borrowing too much now. Try not to borrow more than the anticipated first year salary in total, as you want to keep within a range of setting aside 10% of annual salary for ten years to make payments. You can then use the available calculators for student loan payment amounts to project the monthly payments. If you project earnings of $2000 a month and student loan payments of $800 a month, you might have some problems keeping up with the payments once you take housing, transportation and living expenses into consideration. Do what you can to cut back on the amount borrowed now, or see if there is any way you can bump up your future earning potential while still in school.

Temper Your Expectations with Reality 

While a career in the arts may sound alluring, it might not be economically rewarding right off the bat. Some degrees just don’t yield high-earning jobs, and you could be upside-down on payments from the very onset if you don’t take scrupulous control of how much you borrow.

Think in Terms of Outcomes 

Most students attend college because they want to acquire the skills associated with a better lifestyle.

But those with high debt loads might have to delay the very objectives they wanted because they don’t have enough disposable income. Borrowing too much in student loans, or spending those amounts frivolously, could result in having to delay a home purchase, marriage, or starting a family, or might even result in taking a job outside your desired field just to be able to pay the bills.

So, rising freshmen, student loan class is in session. Sit down with your parents or financial advisors and learn as much as possible about the realities of money now so you don’t get blindsided later. If the calculations don’t look good from the start, you may need to think about alternative solutions such as changing schools or majors, taking on more part-time work, or living on a tighter budget. It’s not easy, but it can be done, and the effort you put in now will be well worth it.