When planning for your child’s college education, financing is often the first concern on your list. Many parents and students turn to student loans to pay for college or at least offset some of the expenses. While borrowing money for school is a common and well-established practice, there are some pros and cons you should consider before deciding yeah or nay on student loans.
Full-Time Enrollment
Your student should enroll full-time whenever possible. While it seems counterintuitive, going to school part-time (even if you are working 20 hours or more a week to help finance it) may not always be the best way to approach school.
While going to school part-time and working may limit the amount of overall debt you accrue, it might also reduce your odds of actually graduating. If you can borrow modestly in order to go to school full time and have plentiful time to study, you are more likely to finish your degree in four years—an investment well worth it.
Keep in mind that your student must be enrolled at least 6 credit hours in order to qualify for any financial aid. If enrollment drops below 6 hours, funds must be repaid immediately.
Avoid Private Loans
You should consider private loans only as an absolute last resort. Federal loans come with many repayment options and borrower protections that private loans don’t usually have.
There are economic hardship deferments, in-school deferments, active military duty deferments, and other options that can help your student manage his or her debt. Federal loans also have fixed interest rates, which can mean a lot of savings in the long term. And these fixed rates allow you and your student to accurately predict future costs.
Private loans are a form of unsecured consumer debt similar to a credit card debt. However, unlike credit cards, student loans are not discharged in a bankruptcy and are treated like unpaid criminal fines.
Income-Based Repayment Options
All federal student loan borrowers can request repayment options based on income. It caps your payments based on what you earn and your family size, regardless of when you graduated.
Even if you earn a lot of money, your payments will never exceed 15 percent of your income. And after 25 years, as long as you have been making payments based on an affordable share of your income, the rest of your debt is forgiven. It is designed to help people who can’t afford a ten year payment plan and keep them from having to dip into their basic needs, like housing, food, health insurance, etc.
Public Service Loan Forgiveness
This is an option if you work in a public or non-profit industry. Instead of the 25 year loan forgiveness that IBF offers, you can get loan forgiveness in ten years. Public service jobs tend to be lower income than private sector – think teachers, public defenders, etc. If your child’s future income is low relative to what is owed in student loans, he or she could qualify for this program.
Making decisions regarding your child’s education can seem overwhelming. Long term planning that involves both educational and financial goals will help you make sense out of a sometimes daunting process. For expert planning assistance, contact The College Planning Source today.
