As students around the world prepare to return to class, they and their parents also face bills for tuition and other college expenses.
It is not uncommon to take out student loans to pay for your studies. But the interest rate you will pay for these loans will increase this fall. Vicki Beam is a financial advisor at Michigan College Planning in Traverse City. “A lot of them are probably getting their bills right now and wondering how to pay them.”
Carol Crawford is a parent of a high schooler and has another student who is rising fast in high school. “My oldest son is now 20. And he’s at Michigan Tech,” she says. The idea of paying for college is hard to escape. “How are we going to pay for this? We knew student loans existed. We hoped we wouldn’t have to, and he certainly didn’t want to. He didn’t want to struggle with that when he graduated.
Crawford’s eldest son double-enrolled through NMC, getting college tuition for free while still in high school. “He double-enrolled in high school and that helped. So he had an associate’s degree from NMC before he left Traverse City. It helped tremendously financially,” she says. “He also works full time. He is very motivated. We helped him where we needed it, but luckily we didn’t need to get a student loan.
And while tuition itself isn’t going up this year, the cost of student loans is. It’s because of interest rate hikes from the Fed, which is raising rates across the board. “Part of how they pay is usually with student loans. And now they find that student loan interest rates have gone up, like all other interest rates,” says Vicki Beam. “A year ago, it was 3.73%. And the student loan interest rate is 4.99%. It therefore increased by a little more than one percent.
That means it will cost more to pay off those loans — although it’s generally cheaper to get a student loan than for parents to take out a private loan for four years, Beam says. “Freshmen, they can borrow $5,500, sophomores $6,500, then junior and senior years $7,500 each.”
“The important thing to know is that your student will probably end up walking away with four individual loans that will have four interest rates. This interest rate stays with the loan for the entire term until it is paid off,” Beam says. “Parent PLUS loans have also increased this year. And we notice private loans…that you co-sign, these depend on the credit rating of the parent. These rates can therefore be quite high, (even) in the double digits. »
Beam says it’s intimidating for parents and students. “You plan to borrow between $80 and $100,000 for four years.” She says scholarships and grants exist, even for current students. “We hear from a lot of scholarship boards (saying) that they have no applicants. And so they don’t give that money. They need someone to apply for the scholarship.
Many college graduates have seen some relief from having to repay their loans during the pandemic. But those days may be coming to an end. “We haven’t had any interest charged, or any loans requiring payment since COVID. March 2020. This is expected to expire at the end of this month,” Beam says. This break could still be extended, but there is no word yet. And it’s hard to predict what interest rates will do in the years to come. “It could go up. And if interest rates were to drop once someone left school, they might want to consider refinancing to try to consolidate and end up getting a lower interest rate.
As for the talk among politicians about canceling student debt? “I would say whatever you borrow, you should plan to pay it back. If it’s forgiven, it’s an incredible gift,” Beam says.
Michigan College Planning offers free workshops and consultations at its Traverse City office.
The Michigan Department of Treasury’s Student Assistance Team urges students and their families to be vigilant and informed when considering student loans.
“Michigan students and families cover a significant portion of their higher education costs,” said state treasurer Rachael Eubanks. “When student borrowers become their own financial advocate, they can better understand how to manage and benefit from the financial aid they receive. Please consider carefully only accepting loans that are necessary. The choices students make today will have results later in life.
To make the best decision about student loans, MI’s student support team recommends seven best practices when considering student loans:
- Complete the Free Application for Federal Student Aid (FAFSA). Colleges use FAFSA information to determine their financial aid awards. By completing and submitting the FAFSA, students maximize all of their financial aid options.
- Understand that loans must be repaid. Not all financial aid included in a financial aid award letter is free money. Many financial aid scholarships will include federal student loans. Unlike grants and scholarships, loans must be repaid with interest.
- Check the amount of interest offered on a loan before accepting it. Federal student loans, parent loans for undergraduate students (PLUS), and private loans have varying interest rates and repayment terms. Before taking out loans, students should identify and compare the interest rate of each loan, then accept the loans with the best interest rates and repayment terms.
- Accept only the amount you will need. Students can either decline a loan or request a lower loan amount, and the financial award letter should include instructions on how to do this.
- Beware of loan scams. In a typical student loan scam, a scammer will request banking information from a student seeking loans. The scammer usually claims that they will use the information to make a direct deposit to the student’s account in exchange for an upfront fee paid through gift cards. Instead, the scammer accesses the student’s bank account and withdraws funds.
- Visit the school’s financial aid office once per semester. Even though students don’t have to start repaying their loans while they’re in school, they don’t have to wait to understand their responsibilities. Students should know the status of their college or university’s student account and keep track of the types of aid they receive. By making it a habit, students can avoid over-borrowing and stick to their budget.
- Create a studentaid.gov account. The website, operated by the US Department of Education, is a one-stop-shop for managing federal student aid. With a studentaid.gov account, students can track their federal student loans, check the interest rate for each, and the total interest accrued to date. Students can also review different repayment options, estimate monthly payments, and find out who their loan officer is when repayment begins.
For more information on Michigan student loans, click here. For more information from the Michigan Treasury on how to be informed when considering student loans, click here.