“The rising costs of higher education coupled with the stress of paying student loans are putting increasing pressure on students.” -Hank Johnson

Learning objectives: Understand what types of resources are available to assist you and how to take advantage of them. Understand how much you can afford to borrow. Understand the repayment process and how to more quickly pay off your loans.

Your Options: The total estimated cost of attending a 4-year public University in state was $18,391 in the year. This means you would pay over $73,000 for a 4-year degree. This number is growing each year. At these rates there are few people that can afford to finance their higher education completely on their own. So what types of additional resources are available to you?  Scholarships  Grants  Loans

Scholarships Yes, the idea of spending hours filling out paperwork and writing essays sounds awful. But think of it this way: If you receive a $500 scholarship and it took you three hours to complete you would have made over $166 an hour! Where else can you make that kind of money? There are thousands of scholarships each year that no one even applies for. The key is to find some that are available to you and apply.

Scholarships How to find scholarships: Check with your school - Both high schools and colleges offer a list of scholarships that are available to their students. Use the internet - Websites like College Board can connect you with tons of scholarships you may be eligible for. Ask around – Some insurance agencies offer scholarships to their policy holders Some company’s offer their employee’s children scholarships.

FASFA In addition to applying for scholarships it is important to file the FASFA. Identifies your eligibility for any grants as well as what you can borrow from the government. If you do not have enough income from scholarships, family contributions, etc. and think you will have to borrow in order to finance your education it is extremely important to file this form. Even if you are unsure or don’t think you will need it, it would be wise to still file it, in case things don’t go as planned.

FASFA Once you have filed and completed the FASFA you will have to determine what you want to accept. One option is Grants: Rewarded to students that exhibit financial need. If you are offered any kind of grant it is a good idea to take it, as this money is not required to be paid back and does not accumulate any kind of interest.

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Benefits of Loans By filling the FASFA you can also be offered a variety of different loans, although borrowing can be scary it is important to remember borrowing can also be accompanied by a variety of great benefits: Loans may give you the ability to attend college, when you otherwise may not have had the opportunity to do so. Loans may prevent you from having to work during the school year, enabling you to focus more on your studies and extra- curricular activities.

Student Loans It’s okay if you need to borrow, in fact student loan debt is one of the best debts that you can have as it’s an investment in yourself, which will assist you in yielding a higher income in the future. Although you should not be afraid to take out student loans it is important that you are well informed so that you can make smart decisions in doing so. Think before you borrow - Despite all the benefits that accompany student loans, you must take many things into consideration before taking out loans, otherwise they could become a burden when you graduate.

Types of Federal Loans Different types of loans which may be offered to you by the government: Perkins: Perkins loans are awarded to students who have financial need. These loans offer a low interest rate and the government makes the interest payments on these loans as long as you are considered at least a part- time student. Subsidized: Like the Perkins loan, subsidized loans are offered to students who exhibit a financial need, and the interest on these loans is paid by the government while you remain at least a part-time student. These loans however generally charge a higher interest rate than Perkins loans.

Types of Federal Loans Unsubsidized: Unlike the Perkins and subsidized loans, unsubsidized loans have no requirement for the student to demonstrate financial need, and the interest on these loans does accumulate while you are in school. The interest charged on these loans is also higher than the rate charged on subsidized loans. Parent Plus: Unlike the pervious loans discussed, parent plus loans are offered to the parents of students, not the student themselves. In addition, the borrower must pass a credit check in order to receive these loans. The interest rate on these loans does accumulate while the student is in school and the interest rate is higher than that of subsidized loans. As a generalization you would likely want to accept a Perkins loan before a subsidized, and likewise a subsidized before and unsubsidized due the different costs of each loan.

Private Loans In addition to federal loans you can also use private student loans to help finance your education. Private loans: Loans offered by nonfederal, private institutions such as a bank, or credit union. These types of loans however should typically only be used if you are unable to obtain enough financing from federal loans as federal loans generally have many advantages over private loans.

Federal vs. Private Loans Some of the advantages of federal loans include: Federal loans generally have lower interest rates than private loans. Federal loans do not require a cosigner. The approval process for students is not based on the borrower’s credit score. Federal loans are generally more flexible than private loans.

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Risk tolerance An important thing to be aware of before borrowing is your personal risk tolerance. This is because borrowing for your education is an investment, therefore it also requires taking on risk.  High risk tolerance:  You are willing to borrow however much you need in order to cover your expenses while enrolled in school.  You are aware this may require you to live on a tough budget upon graduation, however you don’t mind postponing financial goals until after you have finished paying off your student loans.  Your loan total should not surpass your expected future salary. 10% to 15% of your future income will likely go to loan payments.

Risk tolerance  Moderate risk tolerance:  You are borrowing moderately, as you are aware too many loans may require you to delay your financial goals.  Your loan total should not go above 3/4 th of your expected future salary. 6% to 9% of your income a year will go towards loan payments.  Cautious:  You borrow only enough to meet your educational goals as you don’t want your future loan payment to interfere with any of your future financial goals.  Your loan total should not go beyond ½ your expected future salary. 0% to 5% of your future income will likely go to loan payments.

How much can you afford to borrow? When borrowing money it is important to consider your income in order to ensure you will be able to make your payments. As a student however it is impossible to know exactly what your future income will be when it is time to begin making payments on your loans. You can get at least an idea of what your income will be once you graduate by: Contacting your school about what the average starting salary is for graduates from your college with your major (career services should have this information). Find salary estimates for your expected future career online from creditable sources (such as the Bureau of Labor Statics)

How much can you afford to borrow? Once you have found your expected future salary you can use an on-line calculator to find a rough estimate of what your monthly take home pay will be. Example: If you have a total of $25,000 in student loans at a 7% interest rate, when you graduate your monthly payments will be about $290 if you plan to pay them of in the standard 10 years. If an entry-level accounting job in your area has an average starting salary of $40,000 and you are single you will likely have a take home pay that falls roughly between $2,000 and $2,500 a month after taxes.

How much can you afford to borrow? In addition to determining your post-graduate income you should determine the area you want to live in and calculate a rough estimate of what your living expenses will be if you live there. o This should include your housing costs, utilities, groceries, medical expenses, phone bill, and transportation expenses, etc.  A good way to do this is by doing research online, or by talking to people you know in that live in the area.  It is best to assume you will be on the higher side so that you do not under- estimate your expenses.  You can use this calculate to help estimate your living expenses in a certain area.

How much can you afford to borrow? Now create an after college budget first using the information in the previous example and then with your own personal expected loan payments and income.  The first column should be the example with an income of $40,000 a year and a total $25,000 of debt.  The next column should be if your income remained at $40,000 and debt were to double to $50,000.  The third column is your own personal budget and we will discuss the final column later in the module.

How much can you afford to borrow? Reality Check: After having completed your after college budget determine if the amount you plan to borrow is reasonable and if you will be able to pay it back.  If not refer back to the budget you made in the budgeting module and see if there are any costs you can cut in order to better balance your budget.  Also do this if you are still short of funds, (if the amount you budgeted to spend each semester is greater than the total amount you have in scholarships, grants, family contributions, and loans.)  Is there anything you can change?

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Student Loan Repayment Remember student loans are one of the few debts that never go away, even if you file for bankruptcy you will have to pay them back. Do not borrow more than you have to; the less you borrow, the better off you'll be in the future. Loan repayment - the process of paying off your student loans. Most federal loans have a six month grace period after graduation before you are required to begin repayment. Certain loans such as the Perkins can receive up to nine months. Private loan grace periods will vary, with some even requiring payments while you are still in school.  A 10 year repayment schedule is standard for all federal loans and is based on the total amount you owe.  The repayment schedules vary for private loans and are based upon the terms of the contract you agreed to.

Student loan Repayment Types of possible repayment schedules for federal loans (some of which are only available for certain federal loans.): o Standard Repayment o Graduated Repayment o Income-Contingent Repayment The repayment type for private loans is depended upon the contract with which the loan was made and is generally always with fixed payment amounts.

Tips on how to pay off your loans faster Set up bi-weekly payments. See if you are eligible for loan forgiveness programs.  Take advantage of the fact that the interest on some student loans is tax deductible.  Lower your principle.  Pay off the most expensive loans first.  Consider consolidation.

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Module Test