Borrowing Student Loans
For many students, borrowing student loans is your first experience with debt. It is crucial that you borrow wisely and manage your student loans carefully to protect your credit and minimize your debt. You are starting with a clean slate. The Office of Student Financial Aid Services encourages you to take advantage of this and set yourself up to be financially successful once you graduate! Making wise decisions about student loans is the first step in this journey.
Why Should I Care About My Student Loans While I'm Still in School?
Student loans may not feel like "real debt" since they are usually deferred until you leave school, but they are real money. Here are just a few examples of how your actions now will affect you for the long haul:
- Borrowing costly Alternative (private) Loans without exhausting all of your federal eligibility can cost you thousands of dollars over the life of the loan. Which type of loan you choose to borrow is very important!
- If you pay the interest that accrues on an Unsubsidized Stafford Loan while you are in school, you can save thousands of dollars in interest (without feeling too much of a pinch).
For example, a student who borrows $5,500 in an Unsubsidized Stafford Loan who takes four years to graduate will have $1,496 in interest capitalized at repayment (added to the original loan balance). This means that $5,500 from one year of education will cost you at least $6,996 when you leave school...and that is if you pay this amount immediately at repayment! Paying just $31 each month while you are in school would save you almost $1,500 in debt when you graduate.
- How you handle student loans affects your credit score. Did you know that a good credit score does not just help you get low interest rate credit cards and loans? It also affects the amount you pay in car insurance, whether or not a landlord will rent you an apartment, and (for some employers) whether or not you are offered a particular job.
Choosing Which Student Loans to Borrow
Student loans fall into one of two categories: Federal loans and Alternative (Private) loans. Federal Loans are guaranteed by the federal government and include Stafford and PLUS loans. Federal loans have a fixed interest rate, many deferment and forbearance options (for times when you are having trouble making payments), and even some cancellation options in certain situations. Alternative loans are made by private lenders. Their terms vary, but they usually have variable interest rates (tied to market conditions) and very few, if any, deferment and forbearance options. More information about the differences between Federal and Alternative loans can be found on our website under Borrowing for Your Education.
There is an analogy that exemplifies the difference between borrowing federal loans and borrowing alternative loans: Borrowing from the federal government is like borrowing from your grandmother. Your grandmother understands when you need some help (i.e. if you are having temporary financial difficulty or are unemployed). She will give you a lot of options to help you successfully repay the loan. She is more flexible in her loan terms than, say, a bank. Our office strongly encourages you to exhaust all of your federal loan eligibility before turning to alternative loans.
Borrowing Less
One of the easiest ways to keep your debt at a reasonable level is to borrow the minimum you need to cover your educational expenses. Here are some tips to keep your student loan borrowing to a minimum:
A lot of students borrow more than they truly need while in college. Evaluate your wants versus your needs. Focusing on what you truly need now can help you graduate with less student loan debt. Just because you have a certain amount of loan eligibility DOES NOT mean you have to borrow the full amount! You always have the option of declining your loan eligibility or reducing it to the amount you need to cover your educational expenses.
| Instead of... | Try this... |
|---|---|
| Requesting a (more expensive) single room | Live in a double |
| Renting an apartment by yourself | Get a roommate (or more than one). This will not only save on rent, but also on utility costs. |
| Choosing the Ultimate Meal Plan | Choose a cheaper meal plan |
| Going out to eat | Buy some groceries and cook with your friends. |
| Using your summer to relax at home | Get a job during the summer to help pay for your books and living expenses during the year |
| Bringing a car to campus (think of all the gas and parking costs!) | Skip the car and take advantage of the campus transportation and carpool with friends |
Keeping Track of Your Student Loan Debt
The best way to keep track of your student loan debt is to keep good records from the time you start to borrow. Keep a folder of your student loan debt. Even though you won't have to sign a new Master Promissory Note (MPN) each time you borrow a federal loan, you will receive a Disclosure each time you borrow. You will also receive a Disclosure or Truth in Lending Statement every time you borrow an Alternative Loan as well. This will show the amount you borrowed, as well as the interest rate and other information. Put each of these statements in your folder as you receive them. For more information about recordkeeping, see Organizing Records.
There is another tool you can use to track your federal student loan debt. The National Student Loan Data System (NSLDS) tracks all of your federal student loan debt (it does not include any Alternative (Private) Loans you may have borrowed). You will need to enter your social security number, the first two letters of your last name, your date of birth, and your Federal Student Aid PIN to access the system. The NSLDS also shows your lender and who currently services each of your federal student loans.
