What you need to know before taking out loans in college
These days most students have to take out loans to go to college. There are many benefits in loans since most students do not have the resources to pay for their college balance (even after receiving some strong scholarships and grants). Although there are many benefits, we need to make sure we have all of the facts and we need to be prepared for what these loans mean after college.
If a student graduates in 4 years from college (which these days is difficult to do) and if that student decides to take out the maximum amount of Stafford Loans, they will be able to take out $27,000. Note: some students might also be eligible for perkins loans and parents might also be eligible for PLUS loans (which means the family could possibly owe more than this). Also is other circumstances, the student might be eligible for more Stafford Loans.
So what does it look like for a student to leave college with taking out $27,000 in unsubsidized stafford loans (for this situation, I’m going to base this on a student taking out a unsubsidized stafford loan). I am also going to assume that the student was wise in their budget during their college year and paid the interest they were accruing during their college years, so they will still only owe $27,000 after they graduate.
Below you will some of the options the student will have after graduation:
Standard Repayment Program — This program is a 10 year program. The student will pay $310.72 per month for 120 months. In the end, their total payments (interest plus principal) will be $37,246.40.
Graduated Repayment Program — This is also a 10 year program, but every two years the student pays a little more than the previous year (this is created for students that are hoping to make more and more each year after they graduate). Their first two years they would pay $213.35 (year 3/4 — $259.38, year 5/6 — $315.34, year 7/8 — $383.37 and year 9/10 — $466.08). In the end, their total payments (interest plus principal) would be $39,300.01.
So is it worth it to take out $27,000 in loans? What does it mean for the student after they graduate from college? What kind of job will they be expecting after college? Will they be able to make these payments? These are just some of the questions that need to be asked before taking out loans. Loans can be a great option, just make sure you have all of the facts in front of you. Don’t forget that there are many resources that can help you make these wise decisions — websites, financial aid counselors at colleges and of course college consultants.