Originally posted by Generations FCU
Graduating from college is an incredible achievement for a young adult. The future looks bright and the options are endless, but if the graduate doesn’t understand their college loans or have a few basic financial skills, post-graduate life could be filled with road blocks and uncertainty. Here is a Cliff’s Notes for understanding student loan lingo and how it applies to the student or to you the parent.
Understanding Student Loans
A student loan is different from other types of loans. With a student loan a student may use it to pay off education-related costs like room and board, tuition or textbooks. For many students beginning college, the thought of having to pay back the loan(s) seems so far away. When you begin to talk to your child about student loans, getting them to understand the responsibility of making payments can be tricky. While, they don’t have to pay back the loan, the low interest rate is still adding money to the loan. So, if your child has a job, encourage them to pay the interest to help ease the burden when they graduate.
A grace period is the amount of time the student has to begin to make payments after leaving school or dropping below half-time status. Before your child takes out any student loan, be sure to help them gain an understanding of what the grace period is.
Understanding interest rates is a basic skill your child will need to gain financial independence and when it comes to student loans, it can really make a difference. Interest rates vary depending on the type of loan. Student loans are fixed rates, meaning the rate stated when the child signs for the loan is the rate they will receive for the life of the loan. View interest rates of federal student loans disbursed before July 1, 2013 here.
In 2013 college graduates saw an average of $35,200 in total debt and $26,000 of that being in student loans. Ouch! Handling all that debt can be overwhelming, especially if where the student borrowed from is several lenders. If you know your child will probably need several loans to get through college, talking to them about consolidation is a smart move. Consolidating can simplify payments, but can result in loss of some benefits, according to the U.S. Department of Education, so understanding the loan situation is important. To help prepare them make a folder that you keep at your house with all the documents of each loan, make a copy and have your student keep that information as well to safeguard.
With all the student loan debt, your student will probably be overwhelmed. Chances are the idea that they will have to pay back all this money can feel impossible, but it doesn’t have to be! Talk your student about scholarships, and encourage them to get started right away! Introduce them to websites like Fastweb.com and Scholarships.com. Also, encourage them to look local. Many local businesses and organizations look to help future generations right in their community through scholarships, including your local credit union!
Speaking of your local credit union, after you’ve exhausted all free money sources, you may want to consider a private student loan from your credit union. The professionals there are eager to help and have your best interests at heart. Find a credit union you are eligible to join at asmarterchoice.org