Student Loan Information
In a perfect world, between scholarships, grants, our earnings, and our savings we would be able to cover the cost of a college education. Heck, who are we kidding, in a perfect world, college would be free. Unfortunately, it is not a perfect world we live in, so most families will need to borrow some money to cover the cost of education. Before borrowing, here are some tips:
- Make certain that you have exhausted scholarship opportunities, and used our database to search for colleges that would be likely to offer you merit scholarships. Make certain that you have applied for need-based aid and exhausted all subsidized loans before taking other loans.
- Determine what you can afford to pay out of current income, and see if your school has a payment plan so instead of making two lump sum payments, you can break it down into 10 smaller payments. When you figure the amount of money that you can spare monthly, don't forget debt service on any educational loans that you may take.
- Consider the tax implications of borrowing for college. A home equity loan is always a tax write-off, however, I usually do not recommend an equity loan. We know that you are going to retire at some point, and most families largest monthly expense is housing. It would be nice to have your house paid off at some point. Also, if heaven forbid you can't make home equity loan payments, they can foreclose upon your house. If you can't make education loan payments, you will get a bad credit rating. If you are married filing jointly and your Modified Adjusted Gross Income is less than $140,000, you can write off up to $2,500 a year in education loan interest (The amount phases out between $110,000 and $140,000 of AGI, if you are single, the amounts are $55,000 to $70,000). For more information, use read IRS Publication 970.
- Don't think that just because it is an education loan, the interest rate will be low. I have heard of families applying for a loan, and receiving an interest rate of 13%. They might as well have used a credit card, at least they could get rewards miles.
- Shop your loans. The government sets the maximum rate for Stafford Loans, but there are various incentives available from lenders. Some of them will waive the origination fee and guarantee fee. Make sure to shop around and compare.
- Loans are hard to compare, so we have included a tool that makes it easier. Most loans give tiered incentives (after 12 months of ontime payments, we knock of .25%, after your next 12 months we knock off another .25%, then after the next 12 months of on-time payments we buy you a latte at Starbucks). Make sure to check with your state Department of Higher Education and the Department of Higher Education in the state where the student will be attending school as some states have great private loans. Search for student loans from competing lenders at SimpleTuition
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