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Students walk through the campus of Temple University. Photo by Mark Makela/Reuters

Worried about taking on student loans? Here are some tips

A recent poll from The Princeton Review found that the number one worry for high schoolers applying to college is student debt — a marked change from 2006, when that same poll revealed high schoolers’ top worry was getting into their first-choice school.

This month and next, as college acceptance and financial aid award letters start to roll in, families with high school seniors face important decisions: What is the best school for your kid, and the smartest way to pay for it?

Here are some timely tips.

Compare financial aid award letters carefully

Dissecting the offerings from colleges can be confusing because there isn’t a mandatory, standardized way that colleges must present financial aid letters.

Fortunately, many schools follow the Department of Education’s College Financing Plan form, which includes estimated cost of attendance, total grants and scholarships being offered and loan options. The standardized format makes school-to-school comparisons somewhat easier, but whatever the format of your letter, you can input the numbers into the Consumer Financial Protection Bureau’s financial aid comparison tool to help you make better comparisons.

Decide what’s the best deal when borrowing

There are so many different types of loans, it can be difficult to decipher which one to choose. It’s also scary to think about your kids taking on their own debt, but a Federal Direct Loan, which is almost always available in financial aid packages, is typically the best option. Those loans are taken out in the student’s name but tend to have the lowest cost in the long run. They have flexible repayment options when your child graduates, and they don’t require payback until six months after graduation.

Focus in on whether your child received a subsidized or unsubsidized student loan

Your child will likely be offered a set amount of subsidized and unsubsidized loans depending on their financial situation and the school they are looking to attend. The government pays the interest on subsidized loans while your kid is attending school; your kid will have to pay the interest that accumulates during college on unsubsidized loans. If you are offered both, max out the subsidized loans before taking the unsubsidized loans.

In either case, these federal loans tend to have lower rates than the private loans you can get from banks. For example, federal student loans issued during the 2018–19 academic year charge a fixed interest rate of 5.05 percent. Private lenders sometimes charge up to three times that, which is why private loans should only be used as a last resort.

Mark Kantrowitz of savingforcollege.com says your child’s debt at graduation should be no more than his or her starting salary out of college. And while the current average starting salary for college graduates is about $50,000, that figure does vary by major. To get an idea of what your child might expect to earn, check out Glassdoor’s list of the 50 highest paying majors for recent college grads.

Figure out your true out-of-pocket cost

For each school, you’ll need to add up tuition, room and board, fees, books, supplies and a realistic estimate of transportation costs and any other living expenses (food and other household items, if you’re living off campus). Then subtract any outright grant or scholarship money — the sums you don’t have to pay back. The result is known as your net price.

Beware: If your child has received outside scholarships — say, from organizations or civic groups — schools can sometimes use that money to replace some of the scholarship money in their own offer.

Consider reaching out to the financial aid office

If the net price of a school is more than your family can pay (even after you add in federal student loans plus any other loans you decide to take on), you can try talking to a financial aid officer at the school. Approaching them nicely is important; this is your chance to put a human face on the numbers.

If you recently had a job setback, a costly medical expense, or any other financial upheaval in your life, be honest and politely explain your circumstances, while stressing that your child is extremely excited about the school and you’re trying to make it work.

Make sure to weigh all the factors once again

After spending some time analyzing your child’s choices and what they cost, it’s often good to circle back one more time to talk about some very human factors: Is your child really ready to be an eight-hour drive from home? Although one school may have a great engineering program, is that the only factor that matters?

Keep in mind that almost a third of undergrads change their major at least once. All in all, emphasize that there isn’t one “right” decision.

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