How you approach borrowing for college is important as it can affect your finances for decades.
One of the easiest ways to minimize your student loan debt is to be mindful of your overall borrowing costs. Here are some tried-and-true borrowing tips for college.
1. Start Your Scholarship Search and Fill Out the FAFSA®
Begin looking for scholarship opportunities as early as your junior year. The more grants and scholarships you receive, the less you’ll need to pay back. Starting your scholarship search early can also free up time at the beginning of your senior year to fill out the FAFSA (Free Application for Federal Student Aid). Not only can this unlock federal aid opportunities—it’s also used by certain colleges for private aid, as well as grants and scholarship awards.
If your school requires it, you may also need to fill out the CSS Profile®. This is an online application that awards aid from non-government sources.
2. Clarify Financial Expectations
The less you borrow, the less you’ll have to pay back. It seems obvious, but taking on too much debt is a common mistake. If your dream schools aren’t offering enough aid, you might think about ways to minimize tuition. For example, some students start at community college to save money on core classes before transferring to a four-year school. Taking community college classes during the summer can also help you graduate early, which will reduce your tuition bill.
It is also a good idea to have an honest conversation with your family about money and expectations, especially if your parents will cosign for loans. Finally, consider reaching out to alumni and people in your network who have recently graduated college. They can give perspective on what it’s like trying to pay back student loans after graduation.
3. Know How Much You’ll Need to Borrow
Tuition won’t be your only college expense. You may also need to cover housing, dining, travel and commuting, textbooks, supplies, and more. Prior to your freshman year, set a budget and make sure to leave a little room for fun and incidentals. If you have friends or contacts at your school, talk to them about the actual costs they incurred their freshman year—and ask about any unexpected expenses that popped up for them.
Take your total expected costs, then subtract what you already have saved for college (along with any free financial aid like scholarships or grants). This should tell you how much you may need to borrow in student loans.
4. Understand Student Loan Options
Once you receive your award letters, it’s time to compare packages and offers. That might include:
- Grants and scholarships, which don’t need to be repaid
- Federal work-study options, which can be helpful in paying ongoing college expenses like food and housing.
- Subsidized and unsubsidized federal student loan options. These are made by the federal government and have fixed interest rates. A subsidized loan means that you will not be responsible for the interest that accrues on the loan while you are in school. This is a great way to keep your costs down when borrowing for college.
There’s a chance your financial aid package won’t be enough. In this case, private student loans might be an option. These are offered by private banks and lenders. They require a credit check and often give you the choice between a fixed or variable interest rate. Compare your student loan options and choose the loans that make the most sense for your family. Keep in mind you may need your parents to cosign a private student loan.
5. Choose Your Interest Rate
One tip for taking out student loans is to compare interest rates. Federal student loans have fixed rates, but if you decide to take a private student loan, you may have a variable rate. With a fixed rate loan, the interest rate remains the same for the life of the loan. This provides a sense of stability since you will know how much your payment will be every month. A variable rate loan is based on a benchmark interest index and will change periodically. This means the rate and monthly payment could go up and down over time.
6. Check for Fees
Some student loans come with fees. The most common type of student loan fee is the origination fee, which is a percentage of the loan amount that’s deducted from your disbursements. You should also check for application fees, late fees, and other penalties since these could add to the cost of your loan.
7. Look for Discounts and Benefits
Many student loans offer an interest-rate discount—often 0.25%—when you sign up for automatic payments. That can help you save some money on the cost of your loan. It can also prevent a late or missed payment, which could negatively impact your credit score.
8. Consider Making In-School Payments
Most student loans allow you to defer payments until after graduation if you’re enrolled at least half-time. This is a convenient feature since money is tight for most college students—but waiting to make loan payments usually means paying more in interest.
Making in-school payments, even if they’re small, can help you save money in the long run. Let’s say you have a $10,000 loan with a 6% interest rate. If you make $25 payments during school and your grace period (assuming 50 payments total), you’d save $648. That savings increases to $1,297 if you up your payment to $50.
Borrowing for college is a big financial responsibility that requires some planning and research, but remember that you’re not alone. Talk with your family, your school’s financial aid office, and other students. Take advantage of any financial aid workshops—and know you may need to shift some of your plans to suit your budget.
FAFSA® is a registered trademark of the US Department of Education and is not affiliated with Discover® Student Loans.
CSS Profile® is a trademark registered by the College Board, which is not affiliated with, and does not endorse, this site.
