Student Loans 101:

What Families Need to Know before Borrowing

While many families value higher education, figuring out how to cover those costs can feel overwhelming. And these parents aren’t alone. In fact, a recent College Ave Student Loans survey finds that 56% of parents were stressed about figuring out how to pay for college. At the same time, 71% of parents found the cost of college surprisingly high. For this reason, many families choose to explore a range of avenues for funding college. Understanding what options are available is the first step.

Once a family can establish the cost after any available scholarships and grants have been taken advantage of, it’s time to do the math. The next line of considerations will be personal contributions such as a 529 plan, savings, and household income. Any gap remaining in the total owed, will be the amount the family may consider borrowing in the form of a loan. If this is the case, here’s what to know:

First Things First

If the need to borrow does exist, federal student loans in the student’s name should be taken out first as those come with unique benefits and protections, not offered by private lenders. Families should fill out the Free Application for Federal Student Aid at FAFSA.gov to determine a child’s eligibility for certain scholarships, grants, work-study, and federal student loans and more. Families should also explore cost-saving housing options and ways to spend less on school supplies, such as buying used textbooks.

Shopping Around

If federal student loans don’t cover the remaining costs, families can shop around for a private student loan. Here are four factors families should consider when comparing loan options:

1. Competitive rates: Securing a lower interest rate can help a borrower land lower monthly payments and pay less interest over the life of the loan. To get a sense of the overall cost of the loan and monthly loan payment amount, use the College Ave student loan calculator.

2. Flexible loan terms: Find a student loan with a variety of repayment options. Some private student loan lenders, like College Ave, let the borrower choose how long they want to repay the loan. They also offer the option to start making payments right away or defer until after graduation. Keep in mind that making any payments while in school can help lower the overall costs.

3. Fees: Private student loans don’t typically have an origination fee, but it is still a good idea to take the time to check. Families should also make sure the loans don’t have any prepayment penalties.

4. Cosigning a loan: Most undergraduate students don’t have enough credit history or income to qualify for a private student loan on their own. A parent will likely need to cosign the loan, meaning they equally share repayment responsibility, and the loan will be listed on both credit reports. That means good payment history will positively impact both the student and the cosigner’s credit score, and missed payments will have a negative effect on both.

Taking out a Loan

Wondering how much to borrow? A good rule of thumb is not to borrow more than the student’s expected first year’s salary.

Every family will follow their own path when it comes to how they pay for college and will likely need a variety of sources to help. Bottom line? Being a strategic borrower and finding a simple loan experience, like the one offered by College Ave, can help families get on with what matters most: preparing for a bright future.

Interested in applying for a loan? Visit: www.collegeave.com/cbaga

Brian Reed Head of Partnerships College Ave Student Loans