College Game Plan

Three tips to keep your college student from drowning in debt

Key Points
  • Fewer than 1 in 3 students feels confident understanding the financial terms of student loans.
  • Americans owe over $1.4 trillion in student loan debt.
  • While in school, students fail to think about the monthly cost they'll face later.
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Here's a secret to help your child grasp the real impact of student loan debt: Don't just think about the huge sum you've borrowed — focus on what you'll repay each month.

About 30 percent of college students said they feel confident with the financial terms associated with student loans, according to a survey by College Ave Student Loans. The lender recently polled 1,075 undergraduates.

The biggest issue that these young borrowers are missing is the fact that, at some point soon, they'll have to start repaying their loans each month.

"At the end of the day, you'll be making a monthly payment in the future and that will determine your capacity to do other things, such as paying rent that you can afford and buying a car," said Joe DePaulo, CEO of College Ave Student Loans.

Here are a few tips to prepare your student for the reality of loan repayment.

Budget first, borrow later

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Don't just grab everything that's in the award letter.

Calculate the full cost of tuition, room and board, books and more. See how this stacks up against sources of "free money" — scholarships and grants. If you need to borrow, go with federal loans before you tap private loans.

That's because federal loans generally offer a lower rate of interest than private loans. For instance, a direct subsidized loan for an undergraduate student right now carries a rate of 4.45 percent, while rates on private loans can exceed 8 percent.

Further, students who take federal loans have income-based repayment options and may be eligible for forgiveness. Private loans don't have these choices.

"Know how much aid you have coming in and how much the additional expenses are beyond that," said Mark Kantrowitz, student loan expert and publisher at the website Private Student Loans Guru.

Compare total debt at graduation to your expected annual starting salary: If the total amount of student loans exceed that first year's income, you will struggle to repay the debt within 10 years, Kantrowitz said.

Know monthly cash flow, monthly costs

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Get into the habit of budgeting early. Students can start tracking their spending patterns with an app (such as or through a spreadsheet.

"College is a transition from a sheltered existence to the real world," Kantrowitz said. "It's a good time to learn how to manage money."

The Department of Education pays the interest on certain federal loans as long as your child is in school at least half-time, is in the six-month grace period after graduation or has a deferment.

However, interest accrues during college for private loans and other kinds of debt. With these loans, the accumulated interest is added to the principal amount your children owe once they finish their education and the grace period ends.

In this case, having your child pitch in with interest payments while in college can help her become accustomed to repaying the debt — and it means there will be less overall to repay.

"If you take out $10,000 during freshman year and pay the interest, you might pay back between $13,000 and $14,000 altogether," said DePaulo.

"If you choose to defer, you may pay back between $22,000 and $25,000," he said.

Keep a tally of your debt

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Don't just think of the debt as one large lump sum. Break it down into what a monthly repayment schedule might look like.

After all, expenses after college are based on monthly payments: rent, utilities and phone bills, for instance.

Some colleges provide customized repayment information as part of their loan counseling services, said Kantrowitz. Loan payment calculators are also available on the internet via FinAid and Private Student Loans Guru.

Have your child keep track of how much he is borrowing and the applicable interest rates while in school. Recalculate the monthly payment whenever he takes out a new loan, Kantrowitz said.

"This way you know how much you borrowed, the names of the lenders and servicers, and you'll know what that first payment will be," he said.

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