While everyone is waiting for Congress to return next week and fix the problem of a 6.8 percent interest rate, now is a good time to look at what students and parents need to discuss once they do get those loans. As good as Federal Loans are, they do not cover every expense associated with attending college. If parents (or a different co-signer) and students try to cover every expense they can imagine with loan money, the debt hanging over their heads after four years is going to unbelievable.
First, everyone involved needs to understand what their earning potential is going to be at graduation. If a student is graduating with an Engineering Degree, they will have a better chance as higher paying positions in the workforce. Students with degrees in English Studies should prepare themselves for entry level teaching positions and the commensurate salaries. The world in four or five years from now will need both, but neither one is going to start at $100,000. Co-signers for these loans are more than likely going to have to make part of the first year’s loan payments at least.
One way to prevent making huge student loan payments four years or more is to keep the loan amounts as small as possible now. If a new high school graduate really has no idea what to do in that first year, parents should not send them to the best school they can get into now. There is nothing wrong with community colleges, local state universities or even trade schools. There are increasing numbers of students putting themselves through a one or two year program, going to work at a decent salary and then returning to school with some of those first loans paid off and significantly more money in their bank accounts.
After looking carefully, if the best choice is still a four year program, go ahead and pursue those dreams. Be certain to plan for all four years of school now and take out your loans with that in mind. Some schools will agree to lock in tuition for an additional year if parents can pay upfront. It keeps costs down for parents and gives the school additional funding for longer term investments. One of the best investments parents can make for their financial future is to get their student children a meal card for the campus dining hall and then restrict their budget. It not only reduces costs, but keeps the student healthier as well.
There is absolutely no reason for parents to just hand over the entire loan amounts to their student children. They are the co-signer for the loans and still have a responsibility to themselves. Once in school, students get their first big taste of personal freedom along with their own credit report and credit cards. It is often in this first year that students will start some very bad habits and banks are rarely ever looking out for their best interests. Quite a few of them will apply for and get credit cards that Mom and Dad know nothing about and then to cover up making minimum payments on nine months of parties and other lapses in judgment. Despite what these companies advertise, it is not necessary to build a 750 credit rating while still a sophomore.
To help combat this, parents should make certain their student children take at least one class per year on finances. Learning economics from a professional standpoint is going to help them understand that going out for pizza every weekend really does add up to a car payment very quickly and that monthly road trips turn into a down payment on a house before you even get to Spring Break.
All this is not to scare parents into not sending their children to college. Sitting down with their high school graduates and speaking with a member of their college choice’s financial department is simply a smart move for everyone. These are the people that can help avoid financial mistakes such as taking out huge private loans while ignoring the cheaper Stafford Loans (even at 6.8 percent) and the completely free Pell Grants and other Federal Student Programs.
A reasonable plan of Federal and/or Private Loans, part-time work during school or full-time work in the summer with a knowledge of what to expect after graduation can make the next one, two or four years memorable and financially sound for everyone.
Continue to visit www.StudentDebtRelief.us for your most up to date student loan news