Taking out loans for college is a big step. Loans can be a good way to finance your education, and in that sense they can be a solid investment in your future. However, paying back students loans is never easy, so there are a few steps you should take before committing to student loans. These steps can help you find other funding options first, which will save you money in the long run. They will also help you go into your loan agreement better informed about your financial needs and goals. 

Complete The FAFSA

The Free Application for Federal Student Aid (FAFSA) is necessary if you want to borrow federal student loans, but it is also used to determine whether you are eligible for other types of financial support which do not need to be paid back. For instance, grants are often awarded to students based on income, military service, or an agreement to serve high-need communities after graduation.

The Federal Work-Study program is another option that offers students money for school and does not need to be repaid. This program lets students work part-time to earn money for school. Work-study tries to employ students in jobs related to their major, so in addition to paying for school, the program helps students gain work experience that can help them after graduation.

Many colleges and universities also use the FAFSA to determine whether students are eligible for certain funding programs through the school itself. This can include scholarships, grants, and on-campus jobs specific to that school that are reserved for students who show financial need or meet other requirements.

Speak To Financial Aid And Apply For Scholarships

Another important step is to speak with financial aid officers at the school you plan to attend. They can help ensure your financial aid paperwork correctly reflects your household financial situation, and they may be able to direct you to additional funding sources you have not considered. 

Although there are millions of dollars in scholarships available every year, many students never apply for them. Some students assume that because their grades are not perfect or they were not in the top of their high school class that they will not be eligible for any scholarships. This is not true! Websites like CollegeNet.com, FastWeb.com, and FinAid.com can help students find and apply for these scholarships. Recent high school graduates can also contact the guidance counselors at their high school or check with their local public library to find scholarship information.

A note on scholarships—many students wait until their senior year of high school to begin applying for scholarships. However, some scholarships allow students to apply earlier and will hold the award until you begin school. This is common for scholarships available through civic organizations, employers, and commercial companies. So start applying early and keep applying even once you’ve started college. 

Assess Your Finances And Calculate Your School’s True Cost
If your family is helping you pay for school, it’s important to have an honest and open conversation about how much money they will be able to contribute. Even if your family cannot help you pay for tuition or fees, consider whether you will be able to live at home for free or reduced rent. You also need to consider factors like whether you will work while in school, how much you will be able to earn, and whether you will use that money to support yourself (by paying rent, buying food, and so on) or whether that money will go toward your school costs.

Part of assessing your finances includes understanding the actual cost of your school. In addition to tuition, schools charge fees for the services, equipment, and facilities they provide. This can include things like technology fees to cover campus computers or campus wifi; facilities fees for gyms, health service centers, or campus buses; and lab fees for science and technology courses. Depending on your school, you may be required to purchase a meal plan or live on campus your first year. At most colleges, students are required to purchase their own textbooks (although some colleges do allow students to rent textbooks from the library, but there are usually a limited number of copies and the library may not keep copies of all textbooks). You can talk to the admissions office or financial aid office at your college to get a better sense of what you will actually pay to attend school.

Consider Dual Enrollment And Community College
Many states offer dual enrollment courses that allow high school students to enroll in college courses. These courses count toward the student’s high school diploma as well as their college degree. In many cases, the state will pay for students to take these college-level courses, making it possible for participants to save money and finish their bachelor’s degree faster. Dual enrollment programs are usually restricted to students who meet certain academic criteria, such as a certain GPA and good standing within their high school, but it is not based on income like many other programs.

College is expensive, but some colleges are more expensive than others. Community colleges are often considerably cheaper than universities. They are usually smaller and less prestigious, but many studies show that students who attend a community college before enrolling in a university are not only more likely to complete their university degree, but often outperform students who started at a university. Even if your heart is set on a certain school, you can choose to take some courses at a community college and transfer them to your university, saving a lot of money. 

Calculate What Your Monthly Payments On A Loan Will Be

Just like the true cost of college can be more than you initially think, the true cost of a student loan can be surprising. Federal student loans have an origination fee, which covers the time spent processing the loan application and setting up the loan. Currently, the origination fee on federal student loans is 1.057% for federal subsidized loans and 4.228% for federal PLUS loans. This may not sound like much, but depending on the type and size of the loan you take out, this could add almost $1,000 to your total loan that you must pay down later. Some private student loans also have origination fees, although this depends on the lender.

And of course, all loans carry interest. Borrowers pay interest for the life of a loan, so the longer it takes for you to pay off the loan, the more the loan costs you. For instance, for a $25,000 loan borrowed at 2.75% interest, a student would pay $7,902.91 in interest if she paid the loan off in 10 years. But if she paid the loan off in 8 years, she would pay $6,144.08, saving over $1,700. If instead she took 12 years to pay off her student loan, she would pay an additional $1,858.17 to borrow the same amount of money.

There are many online interest calculators available for free, such as Calculator Soup’s Compound Interest Calculator, which can show you how much total interest you will pay on the life of a loan, and FinAid’s Loan Payment Calculator, which will show you the total cost of your loan over its entire life. It’s worth your time to play with different numbers to see what the impact of your loan will be on your life after school. 

Financial website Nerdwallet advises that borrowers should “aim for student loan payments that don’t exceed 10% of projected after-tax monthly income your first year out of school. For example, someone earning $50,000 a year—roughly the average salary for new bachelor’s degree holders, according to the National Association of Colleges and Employers—shouldn’t be paying more than $279 a month toward student debt.” This advice is in line with what most financial experts advise.

Informed Loan Choices Can Make Student Loans A Smart Option

Despite the costs associated with college, most experts still agree that earning a college degree can be a great investment in your future. But to maximize that investment, it’s important to make smart choices about how much you borrow. By exploring other financing options, assessing your finances, and making informed decisions about your education before turning to student loans, you can set yourself up for a better financial situation after graduation.

If your research leads you to borrowing private student loans,, consider Pickett & Hatcher. As a nonprofit lender, we make competitive, low-cost loans to deserving students. The interest and fees paid on our loans don’t go into our pockets; instead, they go back into a fund that will help support the next class of college-bound students achieve their dreams. You don’t have to let cost keep you from attending college. Contact Pickett & Hatcher today and start making your dreams a reality.