Student Loan Borrowing

For many students, borrowing to finance their college degree is necessary. As you prepare for post-secondary education, it is important to understand how the financial aid process works, what types of student loans are available, and how to borrow responsibly.

Financial Aid

  1. Start Planning Early – Plan how to pay for college before you start. Ask school counselors and the college financial aid office about state, college, and nonprofit grants and scholarships you can apply for.
  2. Fill Out the FAFSA Form – Before each year of college, apply for federal grants, work-study, and loans with the Free Application for Federal Student Aid (FAFSA®) form.
  3. Review Your Aid Offer – Your aid offer explains the types and amounts of aid a college is offering you, and your expected costs for the year.
  4. Get Your Aid – Time to go to school! Your financial aid office will apply your aid to the amount you owe your school and send you the remaining balance to spend on other college costs. One of the requirements to maintain financial aid eligibility is that you must make satisfactory academic progress. And don’t forget to complete a FAFSA® form each year!
  5. Graduate and Start Repayment – As you prepare to graduate, get ready to repay your student loans. Good news! Federal student loan borrowers have a six-month grace period before you begin making payments. Use this time to get organized and choose a repayment plan.

Types of Student Loans

There are three types of student loans: federal loans, private loans, and refinance loans. To get federal loans, you must fill out the Free Application for Federal Student Aid, known as the FAFSA. You can apply for private or refinance loans directly with the bank or financial institution you want to borrow from. The right loan is key to taking on no more student loan debt than is necessary.

Federal Student Loans

The federal government provides these loans, and Congress sets the interest rates each year. They come with useful protections like the ability to tie payments to income when you graduate or get loans forgiven if you work in a public service field. Most federal loans don’t require a co-signer or good credit; nearly every student with a high school diploma is eligible to receive them. You just need to fill out the FAFSA, to apply. There are four different types of federal student loans that you can learn more about by visiting the Federal Student Aid website:

1) Direct Subsidized Loans
2) Direct Unsubsidized Loans
3) Direct PLUS Loans
4) Direct Consolidation Loans

Private Student Loans

After exploring federal student loan options private student loans can be a good option for some borrowers, such as students who’ve borrowed the maximum amount of federal loans and still need money. Banks and other financial institutions make private loans to students. When you apply for private loans, the lender will want to see proof you can repay it, usually in the form of a good credit score. A co-signer can help you qualify; that person will be responsible for the loan if you can’t pay it back. With so many options, it’s important to compare interest rates, fees and borrower protections before you choose a lender.

Student Loan Refinancing

After you graduate and have shown responsible payment history, you may be able to refinance student loans. That’s when a private lender pays off your loans and gives you a new repayment schedule and lower interest rate. Generally, you need a credit score of 690 or higher to refinance. You’ll lose federal loan protections if you include federal loans in the package. Be sure to weigh your options before refinancing a Federal Student Loan because you will lose your benefits that come with a Federal loan.

Create a Plan for Borrowing

Create a plan to pay for college that includes scholarships, grants, loans, savings, and other funds. Sallie Mae has a tool called the College Planning CalculatorSM as well as a College Cost Calculator that can assist. Creating a monthly budget will help you decide how much to borrow as well. Sallie Mae's monthly budget worksheet from Sallie Mae is a good place to start. You will also want to consider how much you might earn after graduating and entering the workforce to give you an idea of how much you can afford to pay in student loans. Visit the U.S Department of Labor’s website for estimated salaries by occupation.

To help determine your annual expenses, evaluate your financial aid offer carefully. Your financial aid award letter contains your school’s cost of attendance (including tuition, fees, housing and meals, books and supplies, travel, and other expenses), your Expected Family Contribution, information on grants, scholarships, and federal work study, as well as federal student loan options. Most schools send out financial aid offers around the same time as their acceptance letters. If you have questions about when you can expect your award letter, call your school’s financial aid office. Keep in mind, your offer letter covers one year only, so you will get a new award letter every year. And that means you’ll need to fill out the FAFSA and apply for financial aid annually while you’re in school. Here are three examples of the offers that are sent to the students:
On March 28, 2016 the state enacted Wisconsin Act 284, which requires Wisconsin institutions of higher education to annually provide a letter to all students to inform them of the cost of their education. The letter is required to include specific information about each loan held by a student, including total amount of debt accrued under the loan, the interest rate, standard repayment terms, the estimated monthly payment due under the loan when the repayment period commences, and the amount of interest to be paid over the term of the loan. This information can be a valuable resource to help students plan their financial futures upon graduation. Click for more information on the Wisconsin Student Debt Letter Legislation.

5 Tips for Graduating with Less Student Loan Debt

  1. Choose your college with cost in mind. How America Pays for College shows that 4 out of 5 students attend college in their home state to lower the cost of college. Some students save money by starting out at a community college and some look for schools where they can earn a degree in less time than usual.
  2. Make student loan payments while you’re in school. Interest starts adding up the day your funds are disbursed (sent) to the school. Depending on your loan, you may be able to choose a repayment option where you make payments while you’re in school, which may help you reduce your total loan cost. Choosing an in-school repayment option may also qualify you for a lower interest rate.
  3. Make extra payments when you can. Lenders do not penalize borrowers for making extra payments or paying early. If you choose to defer your student loan payments, you can still make payments any time without penalty. Again, this will help lower the total cost of your student loan.
  4. Look for interest rate reductions. Lenders may offer a student loan interest rate reduction for enrolling in auto debit. This means your payments are automatically deducted from your bank account each month. You can save money on your student loan and you won’t have to worry about being late with your payments.
  5. Don’t pass up part-time work. Work-study is generally a flexible on-campus way to earn money. And many career services offices can help students find part-time jobs in their field—an experience that could help you land a job after graduation.