This is the time of year students, parents and grandparents are excited as students prepare to “emancipate” to college.
There is so much to figure out: what to pack, campus safety, class schedules, dining hall needs, roommates – the list goes on. This is also a time for parents to help students create a budget to control spending and to limit any loan to the bare essentials.
Not to be a wet blanket, but the reality is graduation from college does not come with a job, but it can come with a pile of student-loan debt. Less mature students might see a large “paycheck” and could use funds for travel or fun and games without thinking about future consequences. It’s not too late to begin a discussion about a realistic plan between the student and the college financial aid office.
A realistic budget might look to additional sources of funding as well as additional options for careers that help dismiss part of the student’s federal loans. Only federal loans can qualify for loan forgiveness opportunities. The average borrower next year is expected to carry more than $38,000 in student loan debt. Student loans can seriously hamper one’s future if not carefully understood.
Student-loan debt is increasing faster than any other consumer debt. According to the Department of Education, 38 million student-loan borrowers have more than $1.1 trillion in debt.
The absolute worst thing a student can do is borrow too much. What’s too much? College financing expert Mark Kantrowitz advises students to limit total borrowing to no more than what they will earn in their first year of work. If an entry-level job for a given career is estimated to pay $40,000, then total borrowing should be limited to no more than $40,000. Sometimes students need help to understand this limit.
Half of 2013 graduates with student loans said they hadn’t realized how much they had borrowed, according to Fidelity Investments. Thirty-nine percent said that if they had been aware of how much they now owe, they would have made different choices in their college planning. The first step is to understand anticipated debt as well as consequences to various methods for repaying a college loan. For more about this, go to http://bit.ly/2uLX4e9.
The student-loan “debt bomb” has the makings of being America’s next economic crisis. Student loans (whether a degree is received or not) cannot be dismissed by declaring bankruptcy. Currently, almost half of all student loans are in deferred status, which can result in horrific compound interest.
The interest rates on new federal student loans increased 0.69 percentage points July 1. Federal student loans have fixed interest rates that do not change over the life of the loan. However, each year’s new loans are adjusted in May.
The base interest rates for loans made between July 1, 2017, and June 30, 2018, have an additional fee that can change annually.
Federal Stafford loan (undergraduate students): 4.45 percent.Federal Stafford loan (graduate students): 6 percent.Federal Grad PLUS loan: 7 percent.Federal Parent PLUS loan: 7 percent.
Wendy Rice is the family and consumer science agent for the La Plata County Extension Office. Reach her at wendy.rice@colostate.edu or 382-6461.
Federal Stafford loan (undergraduate students): 4.45 percent.Federal Stafford loan (graduate students): 6 percent.Federal Grad PLUS loan: 7 percent.Federal Parent PLUS loan: 7 percent.Wendy Rice
