Top Five Things to Consider Before You Borrow Student or PLUS Loans

By this time of the year most new college freshmen and their parents have received their financial aid award letter or student aid report. If you’ve saved for college since your child’s birth, earn enough to pay cash for college expenses, or your college student won a number of scholarship, you probably don’t need to borrow money to help pay for college. But, if your child is among the approximately 2/3 of college students who DO borrow to pay for college there are five things you and your student MUST consider before you accept these loans.

1. Only borrow what is NEEDED. Some students only need to bridge a $1,000.00 gap between what they already have in the bank and what they will need to pay for college, but most students will receive an offer of much more than that in loans. Only borrow the minimum amount needed.
2. Always exhaust other sources of income and “free” money first. If your child qualified for federal work-study, they should work at least enough to earn what they qualified for. Even students who do not qualify for work-study can work part-time to help fund their education. Working only eight hours per week at minimum wage is enough to bridge a $1574.00 gap in funding over two, 16-week semesters. Students can also continue to apply for all possible scholarships because even a few small scholarships can make the difference between graduating debt free or not.
3. Do not borrow to pay for lifestyle expenses. I can’t tell you how many times I’ve seen students and parents borrowing thousands each year (currently at 4.66% to 7.21% interest or more) to pay for what are considered lifestyle expenses. These include any unnecessary expenses such as driving a car when other transportation is available, choosing a residence hall, apartment, or meal plan that costs more than the bare minimum, joining a Greek letter organization that the student can’t afford, and traveling for leisure or even study abroad that is not required for the student’s degree completion.
4. Avoid private student loans. Almost any financial aid office at any college will advise you to only borrow federal student loans, then if absolutely necessary, federal PLUS loans. Private loans are almost always a bad choice to finance a college education because the borrower does not have the various repayment options available from federal loans. If you reach the point where they are the only option, the student needs to seriously re-evaluate his or her choice of college and either take a gap year to earn more money, attend college part-time, or seek out a less expensive college. Chances are good that there is a less expensive alternative within commuting distance.
5. Use one of the many free, online student loan calculators to estimate future monthly payments. http://www.finaid.org/calculators/loanpayments.phtml  All loans will have to be paid back with interest, so students and parents can use these calculators to estimate what their payments will be and for how long. Pay close attention to the estimated salary needed to pay off the loan, and understand the total amount of interest paid on these loans. Students also need to be realistic when estimating their future salary. They can research average starting salaries at http://www.bls.gov/ooh/ , but keep in mind these are average salaries.

Where to Work While Attending College

Students who work while attending college become experts at managing time and money and take their college education more seriously. They also gain valuable work skills. The kind of job depends on your student and his schedule and financial needs, but the hours shouldn’t stretch beyond about 16 hours per week. College students already have a full-time job as a college student, so adding more than 16 hours of additional work during the week is usually detrimental to academic success.

On Campus Jobs

I really prefer to see students in on-campus jobs for a number of reasons. First of all, the commute is extremely easy. If your child can find a job in his residence hall as a front desk clerk or food service worker, his commute may not even take him out of the building. Secondly, on campus jobs usually offer very flexible hours that fit easily into students’ schedules. Faculty and staff recognize and appreciate that students will place their academics first and their job second, and are usually willing to work around class schedules.

Finally, on-campus jobs are usually easy enough to find if your child isn’t too picky. The two departments on campus that always seem to be hiring are food services and custodial or housekeeping. While I know these jobs aren’t for everyone, they usually offer the most flexible schedules and it is common for food service jobs to offer students free or discounted meals, a definite bonus when you’re watching a budget.

Off Campus Jobs

Most college towns have a lot of service jobs readily available for students and while they may offer higher pay than on-campus jobs, it will be incumbent on the student to continually remind his off-campus supervisor that he is a student first and an employee second. Some off campus jobs will offer students unique opportunities in their field of study.

If your child can find such a job it is ideal, but even if he can’t, any job experience is a plus for a future job search. Upon graduation, employers will want to see a prospective employee who has a proven record of experience in the work world regardless of where that experience was gained.

Become an Entrepreneur

Some students don’t want to worry about a set schedule or punching in and out on a regular basis. If your child is looking for an extremely flexible way to earn money, he may consider working for a temp agency or becoming an entrepreneur. Students can earn extra money by starting their own businesses such as offering pick-up and drop off laundry services for other students, pet or house sitting, dog walking, web site development, photography, foreign language practice partner or other tutoring, care package assembly and delivery, you name it!

Work Study

Work Study is a program administered through the Department of Education that provides a win-win scenario for students and employers. Students who are eligible for work -study (this will be included in the student’s financial aid award letter) can work at approved work-study jobs on and off campus and keep the money they earn for their educational expenses. In exchange for hiring work-study eligible students, employers receive a subsidy to defray the cost of employing the eligible student.³¹

Many campus offices will try to hire work-study eligible employees before they open jobs for others to apply. So, if your child is eligible for work study make sure that he applies for these jobs early, even before arriving on campus.