Getting accepted into my first choice university was simultaneously the most exciting and terrifying time of my life.
The school I wanted to attend was out of state, and expensive. I would be rejecting all the scholarships I’d earned for state schools and basically putting myself and my single father in a world of debt. Nonetheless, my father encouraged me to go. We both felt that with me being underprivileged, black, and a woman, I needed to take all the risks to give me the best chance for success. That meant going to the best school no matter the cost because, in the end, it’d be worth it.
Through my years I’ve dealt with so much strife and heartache relating to taking on student loans, but it’s taught me a lot about finances. Most people have to take on some kind of student loan to pay for our backward education system. It’s scary, I won’t lie, but here are a few things I’ve learned that could help you make the best decision for your future.
1. Fill out your FAFSA as soon as possible
I cannot stress this point enough. FAFSA is the free application for student aid. This includes your scholarships, grants, and federal loans. You want to fill this out as soon as possible because aid is limited and on a first come first served basis. You’ll need your parents’ most recent tax return and yours if you work. The applications open up every year on October 1st.
Personally, I had no idea about this and learned the hard way. One year my dad took forever to do his taxes and so I didn’t submit my FAFSA until January. Subsequently, I got so little aid that I had to pay my school $7,000 out of pocket and since I didn’t have that, I had to take a year off from school. It was scary and awful and falling behind really messed with my mental health.
2. Understand the difference between subsidized and unsubsidized loans
Now, these two types of loans refer specifically to government loans.
The type you will be offered is strictly need-based. A subsidized loan is a loan where interest doesn’t start to accrue until you are out of school whereas a subsidized loan accrues interest as soon as the money is disbursed. No matter how long you plan to be in school, it’s always nice to not have thousands of dollars added to your debt, so always go for the subsidized loan if one is offered to you.
3. Ask about institutional loans
If federal loans still don’t end up covering your cost, ask your financial aid office about institutional loans. These are loaned out to you by your school and tend to have lower interest rates than banks and other private loan companies.
That $7,000 I owed to my school eventually had to be taken care of with an institutional loan, and my office helped me develop a plan for repayment after graduation that wouldn’t put a major strain on me in addition to my federal loans.
4. Choose Fixed Rates over Variable Rates
A variable rate refers to interest and the amount charged to your outstanding loan balance. The variable rate is dependent on the market and so your interest could increase or decrease and will directly affect your repayment amount each month.
So one month the market could be good and you’d pay $100 and the next month it could change to $500. A fixed rate doesn’t change and your repayment plan would stay at $100 a month unless you decide to pay extra. This is why you hear so many scary things about private loan companies like Sallie May who have variable rates and repayment is really hard on individuals.
5. Repaying your loans
With all my financial hiccups I ended up taking significant time off from school and at one point I started to repay my student loans. It’s important to know that you don’t have to start paying immediately. Most companies give you a six-month deferment or postponement of payment. This allows you to find a job, save up, and gather your finances. Take this time to do so. Missing a payment can be really detrimental to your credit and affect you in a myriad of ways like preventing you from buying a car or home.
No matter how much you know, student loans are a scary thing. You’re never sure of what your finances will look like in the future and if you’ll be able to repay it. The only thing we can do is try to know as much as we can and continue to invest in ourselves and our future. That makes everything worth it and prevents hiccups along the way.