Student Loan Series: Part 2


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Just as new graduates are beginning to pay back their federal student loans, prospective undergrad and graduate students are eligible to fill out the financial aid paperwork for next academic year. The Free Application for Federal Student Aid (FAFSA) may be submitted as early as October 1 for the following year – in this case, the 2019-2020 academic year.

In South Carolina, some funds are disbursed until they are gone, so prospective students should act quickly.

Federal Student Loans
Federal student aid is administered by the US Department of Education, which lends more than $120 billion annually for higher education. Undergraduate and graduate students may borrow up to $20,500 annually through this program, though certain graduate and professional studies students in the health professions may borrow more.

Students may borrow additional amounts from private lenders and through the federal Direct PLUS Loan program. Graduate school loans through the Federal Direct Loan program carry a 6.6% interest rate; Direct Plus Loans are at 7.6%. Private loans generally carry higher interest rates, fewer repayment options, no forgiveness provisions like those available to public servants, and generally stricter terms. For most people, they are a last resort.

Keep in mind that for every $10,000 you borrow, you’ll pay back about $125/month for 10 years. So if you borrow the full $20,500 for two years of grad school, you pay back $600/month on top of your college loans. That’s a luxury car payment that lasts twice as long. Most financial experts advise you to borrow as little as necessary, regardless of the lender.

The FAFSA Application
The FAFSA application is often used by schools to determine financial aid packages and by private lenders and grantors, so it can be advantageous to apply early, even if you don’t believe you qualify for subsidized loans. The Education Department has revamped its online application and launched a new app, MyStudentAid, which allows families to fill out the application on a mobile device.

For those just kicking the tires at this point, FAFSA offers a FAFSA4caster that makes it easy for prospective borrowers to estimate the amount of loan for which they qualify. The forecaster takes a minute or two and provides a sense of the path forward financially.

Think Before You Borrow

Subsidized student loans have helped millions of Americans pursue college and graduate school educations and advance their careers and grow their income. But they are a double-edged sword. Financial planners warn that student loans should be understood as long-term investments. Prospective students must make honest determinations about the return on that investment before undertaking piles of debt. Taking a large loan to fund a graduate degree in computer science might pay off handsomely in terms of income gained. The same size loan for a graduate degree in music might not make financial sense.