Going to college is an exciting adventure for those who choose to take that route, but it can be expensive. Many students take out student loans and Teachers Credit Union (TCU) has some expert advice for those looking to take this next step.
“Becoming familiar with student loans sooner rather than later can help you plan better for borrowing and repaying,” said Bethaney Bauman, TCU’s Student Loans Program Coordinator. “One of the best life lessons we can teach is how to responsibly manage money.”
Being prepared for college financially also helps to relieve stress after graduation when the time comes to pay off what you owe.
“Young people’s futures should not be limited by heavy student loan debt,” Bauman said. “We try to educate students and families and help them get the information they need before they commit to any student loan.”
The best option for students who need to borrow money to pay for college is a federal loan — either subsidized or unsubsidized. However, subsidized student loans often go to students whose families’ annual income is less than $50,000.
“Unsubsidized student loans are available to all undergraduate and graduate students, regardless of financial need,” Bauman said. “The difference between the two federal loan options is that subsidized loans are based on financial need and the interest doesn’t accrue while the student is in college, as the interest is paid by the federal government.”
To be eligible for either federal loan option, students and their families must submit a FAFSA, or Free Application for Federal Student Aid. It’s used by schools to put together federal student aid packages. Packages can include grants for college, work-study, federal student loans and even state and school financial aid. However, federal loans usually don’t cover all the costs. That is where a private loan from a trusted financial institution, like TCU, can help.
“Most families need to also take out private loans,” Bauman said. “We’re here to help navigate the private loan arena. Because credit unions are owned by members, they can often provide lower interest rates and can be a good solution to help borrowers fill in the funding gaps.”
Through its partnership with studentchoice.org, a provider of affordable private loan financing solutions, Bauman says TCU offers a host of free resources to understand the best way to take on student loan debt — and what to do once you have it. The website also has information about student loan consolidation and student loan refinancing.
“I always encourage students to borrow as little as they need, not as much as they can,” Bauman said. “Ideally, student loan debt should be limited to be no more than the amount of your starting salary. That way you can afford to repay your loans in 10 years or less using 10 percent of your gross income.”
Figuring out a future salary may seem daunting, but there are online tools to assist. Bauman suggests the website salary.com to research one’s potential earnings and says taking extra measures upfront can help students to avoid excessive financial burdens later on.
“To make the monthly payments manageable, students who take on too much debt may be forced to turn to extended repayment or income-driven repayment plans,” Bauman said. “Stretching out the loan term over 20 or even 30 years sometimes means graduates are still paying off their own loans when their children enroll in college. And when you stretch out a loan, you’re also spending a lot more on interest.”
Part of ensuring a student isn’t taking on too much future debt is helping students understand their dream college may not be their best option if it requires borrowing more money than they can pay back efficiently.
“For high school seniors, it’s sometimes hard to imagine that excessive debt is more important than attending the college of their dreams,” Bauman said. “But research shows students who graduate with too much debt are more likely to feel that their education was not worth the money, compared to students who graduate with a manageable amount of debt.”
For those who are out of school and facing their student loan repayments, Bauman has some advice. Most importantly, she says, don’t neglect your payments. And if you’re struggling to make them, see if you can refinance to a lower interest rate.
“While most debts can be terminated through bankruptcy, student loans cannot. They are with you for life — or until you pay them off. If you stop making payments on your student loans, your wages can be garnished in order to pay the debt,” Bauman said. “Make sure you know what interest rates you are paying. If it’s higher than average, do some research and see if you can refinance for a lower rate. And if you’re unable to refinance, prioritize the loans that have the highest interest rates.”
For those about to start their college journey, the experts at TCU are ready to walk you through your student loan options. And for everyone else, TCU provides information on healthy borrowing.
“TCU has a free Financial Empowerment Program, powered by FoolProof, which offers interactive sessions on topics from improving credit scores and avoiding predatory lending, to helping people make smart financial decisions,” Bauman said. “And, just to emphasize, it’s all free and available at tcunet.com/plan/financial-education.”
For more information on Teachers Credit Union, visit tcunet.com
