Borrowing and Financial Literacy
Student Loans: "Deferred Work"
In recent years, more students have begun to rely on educational loans to help pay for college. Educational loans can be an excellent resource for students trying to pay educational costs, but the debt incurred should be considered carefully. Borrowing now for college to pay later when you are working has long-term implications. Like any debt, a student loan is a serious financial obligation that you must repay. The amount you borrow now can seriously affect your life after you leave school. Besides the principal amount you borrow, all student loan programs will charge you interest for the funds. Your ability or inability to repay will affect your credit rating and your ability to borrow for other purposes, such as a car or house. If you should find yourself unable to pay, you may be subject to additional late charges, collection costs, court costs and attorney fees.
Budgeting is an excellent way to make choices when you have limited funds. If you borrow to help pay for your education, you should create a budget each year to review the items you could do without. Remember there is interest on the funds you borrow and you will be repaying over the next 10 years. Consider downloading your choice of a 9 month interactive budget worksheet, 12 month interactive budget worksheet, 9 month document worksheet, and 12 month document worksheet.
It is important to note that there are ways to increase your income and reduce your expenses.
You will also want to carefully consider the career choice you have made in relation to the amount you borrow. Some professions do not offer an attractive entry level salary and may make it more difficult for you to pay sizable loan payments. (Please see the section below: How much Will You Be Able to Pay Later?)
Alternatives to Borrowing
Before seeking a student loan, explore other ways to pay for your college education. Here are some ideas:
Check with your with your admissions advisor about scholarships. Look first for funds that you do not have to pay back. They offer some based on need, some on academic merit, test scores, athletic skill, musical or artistic talent, community or volunteer activities, or other special abilities.
Investigate offers offered by the university, religious groups, fraternities, sororities or civic groups. Check with employers and organizations connected with your field of interest. You can view Troy University scholarships at https://www.troy.edu/scholarships-costs-aid/scholarships/index.html.
Consider student employment. Financial Aid may find you eligible for Federal Work-Study (FWS). Career Services is another source of part-time jobs. Also, plan to work summers and holidays to help pay tuition and expenses.
If you are interested in the military, investigate the educational benefits of ROTC programs.
It is important to note that there are ways to increase your income and reduce your expenses.
Factors to Consider
After investigating alternatives, you may decide a loan is still necessary. First,
consider the following:
Amount of Loan: Think about how much you need to borrow. You may not want to borrow the full amount for which you are eligible.
Number of Loans: Your plans for further study will affect your total indebtedness. For example, are you going to graduate school?
Loan Limits: Most loan programs specify minimum and maximum amounts you can borrow.
Repayment: You can avoid multiple monthly payments by, when possible, staying with one loan program.
Length of Repayment Period: You will save interest costs if you choose a shorter repayment period (although monthly payments will be higher). Federal Direct Loans offer a variety of repayment options.
Federal Direct Loan Rates:
Interest Rates for Direct Loans First Disbursed on or After July 1, 2020, and Before July 1, 2021
Fixed Interest Rate
Direct Subsidized Loans and Direct Unsubsidized Loans
Direct Unsubsidized Loans
Graduate or Professional
Direct PLUS Loans
Parents and Graduate or Professional Students
All interest rates shown in the chart above are fixed rates that will not change for the life of the loan. The lender has loan fees that are deducted proportionately from each loan disbursement you receive while enrolled in school. This means the money you receive will be less than the amount you actually borrow. For more information regarding interest rates and loan fees, please go to this website: https://studentaid.gov/understand-aid/types/loans/interest-rates
How Much Will You Be Able to "Pay Later"?
To decide how much indebtedness you can probably manage when you graduate, consider your expected starting salary, earnings prospects and your lifestyle. Then, estimate your anticipated level of debt and monthly payments and see if the two are in the same range. If you cannot afford your projected payments, then try to borrow less. Try to be realistic when projecting your future earnings and the amount you will need to pay living expenses after graduation. Remember, starting a new job and setting up living arrangements will require extra resources and create a heavy initial demand on your new income. Click here to use the 9 month interactive budget worksheet, 12 month interactive budget worksheet, 9 month document worksheet, or 12 month document worksheet. Use them to project your future income and debts. You can review the median pay for occupations at: USBLS, Occupational Outlook Handbook
Your Exit Interview
About two months before the end of your last semester at the university, you will need to make an appointment for an exit interview if you have received a Federal Perkins Loan. If you received a Federal Stafford Loan, you will need to complete an Exit Counseling.
During the interview, you will receive information about repaying your loans. Most loans have a "grace" period of six or nine months. You do not have to start repayment for this length of time after you graduate, withdraw or enroll for less than half time. Refer to your promissory note copy for this length of time. If you can make payments on your loan during your grace period, do so. Grace period payments are interest-free and greatly reduce the overall amount of interest you pay.
When your loan is due:
- Stafford Loans: You will hear from the lender from whom you borrowed the loan, the secondary market, or the billing agent that bills for them. If you do not hear from someone regarding your loan within 60 days of leaving our school, call your lender. When you signed your promissory note you agreed to contact your lender when you leave school.
- Federal Perkins Loan: You will hear from our current billing service, University Accounting Services, within 90 days of leaving our school. If you do not hear from them, please contact:
Financial Affairs - firstname.lastname@example.org
Troy, AL 36082
Federal Consolidation Loans
Consolidation Loans allow you to combine certain federal student loans. It allows you to make one monthly payment rather than multiple payments to various lenders. If you have both Stafford Loans and a William D. Ford Direct Loan, you can consolidate through the federal government by calling Direct Loan Consolidation at 1-800-557-7392.
You can consolidate the Federal Perkins loans with either the Stafford Loans or the federal government. You can lose important deferment benefits through consolidation but benefit by have a lower payment overall and one place to send payments. Four repayment plans are offered. There is no charge for consolidating your loans.
Good Credit Records
For most students, a student loan is the first experience with credit. Student loans can be an excellent way to establish a good credit rating. Pay your student loan promptly each month. Frequent late payments constitute delinquency and may harm your credit history. Here are some tips on establishing good credit:
- Notify the necessary parties regarding change of address or name change. Stafford Loan changes should be referred to your lender, servicing agent or the secondary market.
- Send the payment due each month, even if you haven't received a bill. When you can, send extra payments to reduce your total interest.
- Always call the appropriate (lender, servicing agent, secondary market, direct loan servicing center or University Collections) if you have a question or problem.
- Never ignore correspondence or a payment request.
If you default on your NDSL or Federal Perkins Loan, you may rehabilitate your defaulted loan by requesting the rehabilitation and by making an on-time, monthly payment, as determined by the loan holder, each month for twelve consecutive months. If you successfully rehabilitate your defaulted NDSL or Federal Perkins Loan, you will again be subject to the terms and conditions and qualify for the benefits and privileges of your original promissory note and the default will be removed from your credit history. You can rehabilitate a defaulted NDSL or Federal Perkins Loan only once.
Student Loan Ombudsman:
If you dispute the terms of your Stafford Loan or NDSL or Federal Perkins Loan in writing and the holder of your loan is unable to resolve the dispute, you may seek the assistance of the Federal Student Assistance Student Loan Ombudsman of the Department of Education. The Student Loan Ombudsman will review and attempt to informally resolve your dispute and may be reached at 1-877-557-2575. You must first have tried to resolve your dispute yourself.
Financial Literacy Web Sites:
Career & Salary Planning Sites