It is important for you to speak with your children about student loan debt before they head off to college and wind up taking out too many loans. It may be difficult to figure out what you need to talk about, especially if you have never been down this road before. We will go over some of the things you should bring up and say before your child signs for his or her first federal student loan.
What a Student Loan Is
It is wise to talk to your child about what a student loan is and what they can expect from one. If your child has never taken a loan out before, he or she may not know what to expect.
Student loans are used to help offset the cost of college, but those who borrow must pay the loan back. It is vital that you explain to your child that they must pay the amount they borrow back as it is not free money. Now, if your child receives a scholarship or grant, they do not need to pay this amount back.
How Much to Borrow
You should always discuss with your child how much they should borrow. While they may be tempted to take out the entire loan amount, if they do, they will wind up with a large amount of debt.
It is recommended that students only borrow the amount of money they need. For instance, if tuition and books are going to cost $15,000 and the student has $10,000 on hand to pay for college, he or she should not take out much more than $5,000 to finish covering the cost of their schooling.
Interest on the Student Loan
You want to talk to your child about interest rates, especially since they have some decisions when it comes to them. First, interest will accumulate on unsubsidized and private student loans while your child is in school and interest adds to the amount of money that your child owes.
Interest payments can be made while your child is in school and many students find it helpful to do this. Companies like Wells Fargo allow students to make interest only payments while in school. If your child does want to pay interest while he or she is in school, make sure to speak with a financial aid counselor and the loan officer to ensure your child knows the amount that needs to be paid.
Default on a Student Loan
You should always let your child know what will happen if he or she does not pay back their student loan. Default happens when a student does not remit payment on their account for a length of time. Once default is reached, the loan officer is able to put a halt on any more federal student aid, garnish the student’s wages, and garnish the student’s tax returns.
If your child is having trouble paying his or her student loans, you should let them know that he or she can contact their loan provider. Many loan providers want to work with you and have a variety of options to help students afford their payments.
For example, if your child is considered low income, he or she can apply for a financial hardship or deferment. This will allow the student to hold off on payments until his or her financial situation changes. You typically have to resubmit an application for deferment each year.
In addition, there are programs such as an income-based repayment plan and lower monthly payments. You and your child will quickly realize that paying back student loans does not have to be as difficult.
If you are getting ready to talk to your child about student loans, make sure to cover the things above and let them know that their financial counselor can always help them make the right federal loan decisions.
All students must pay attention to how much money they borrow each semester as the amount can quickly add up and having a huge outstanding loan amount can hurt you when your career does not have a matching salary.