Most students going to college today receive some form of financial aid, but financial aid packages generally do not cover all of the costs associated with attendance. College financial aid packages often include a substantial amount of “self-help” in the form of student and family loans. According to a 2011 College Board report, the 56% of public college graduates who borrowed for college owed an average of $22,000 at graduation. 65% of private college graduates owed an average of just over $28,000 at graduation. Since studies have shown that a college graduate is likely to earn over $1 million dollars in additional lifetime income over the amount earned by a high school graduate, incurring such educational debt seems reasonable. The type of loan selected and interest payments do significantly, however, affect the total that will need to be repaid.
Students qualify for loans subsidized by the Federal Government (Perkins and Stafford loans) through family financial information submitted on the FAFSA. Perkins loans are available only to students who show extreme need, but many middle-class families qualify for Stafford loans. These are attractive because of their low interest rate and repayments that begin after the borrower has completed his or her education.
To fill the gap between financial aid that has been granted and the total cost of education, many families turn to PLUS loans (Parent’s Loan for Undergraduate Students). Repayment of PLUS loans begins 60 days after the loan is funded, but rates and fees may vary by lender. College Board has a loan calculator that will allow you to compare loan costs in your search for the best option for your family at BigFuture.CollegeBoard.org.
Although the housing crisis has affected the value of home equity, many families still have a good deal of equity in their homes. Families can tap some of this equity through home equity loans. These currently have very low interest rates and the interest paid is often tax-deductible.
To reduce what you might owe, look for ways to lower college costs. Consider taking some classes at a local community college or work a part-time job. Your goal should be to borrow only what you absolutely need to pay for college expenses. For many students, the additional cost of graduate school lies ahead.
