Additional Student Loan Debt Counseling
Designed for students who wish to borrow Alternative/Private Loans or Additional Unsubsidized Stafford Loans
Choosing to borrow an additional student loan, such as an alternative loan or an Unsubsidized Stafford Loan is a very important decision. It is essential that you research all potential financing options and cost-cutting measures before borrowing additional loans. Loans that accrue interest while you are in school should ONLY be considered as a last resort; after all other options have been exhausted.
In order to assist you in this process, the Finance Authority of Maine (FAME) has created the following on-line Additional Student Loan Debt Counseling. We strongly encourage ALL students who wish to borrow any additional loan to complete this on-line session.
During this tutorial, you will be provided with important information regarding budgeting, debt management, financing options and ways to reduce expenses:
Some of this information has been provided by Mapping Your Future®, a national neutral, collaborative, public-service organization of the financial aid industry. (MappingYourFuture.org).
Isn’t all student loan debt the same?
No, not all student loan debt is the same. In fact, certain types of student loans can be more expensive than others. This counseling session was created to address any type of student loan that accrues interest while the student is in school taking classes. The most common types include:
Federal Unsubsidized Stafford Loans are fixed rate loans that are available to all students regardless of financial need (although the FAFSA must be filed). This is a federal loan; therefore, the terms and conditions do not vary from one lender to another. A credit check is not required to receive these loans. The amount that a student can borrow depends upon his/her grade level in school and dependency status.
Unlike a Federal Subsidized Stafford Loan, interest accrues while the student is in school, as well as during any periods of deferment. The student is responsible for the interest, which may be paid while the student is in school or accrued and then added to the principal balance. Because interest accrues, this type of loan is more costly than a Federal Subsidized Stafford Loan. For example, if you borrow $10,000 in Federal Unsubsidized Stafford Loan and attend school for four years, you will end up accruing $3,500 in interest alone!!
Federal Unsubsidized Stafford Loans can be consolidated and there are several deferment and forbearance options that exist. They are a better borrowing option than Alternative loans because of their benefits and the interest rate is almost always lower. In addition, this type of loan can be discharged due to disability or death.
Alternative Loans (sometimes referred to as private loans) are credit-based loans offered by private lenders either as an alternative to, or in addition to federal loans. Alternative Loans are one way to provide additional resources to close the gap between federal, state and school financial aid resources and actual college costs. Students (typically with a credit worthy co-signer) can apply for an Alternative Loan to cover the total cost of attendance minus any other financial aid, the total of which cannot exceed the cost of attendance at your school. It is important to remember that Alternative Loans are NOT the same as federal loans and are typically more expensive. Alternative Loans cannot be consolidated into a Federal Consolidation Loan and cannot be discharged due to disability or death.
Alternative Loans do not have the same terms and benefits as federal loans and often carry higher interest rates and fees. Because these loans are offered through private lenders, the terms and interest rates can be as varied as the lending institutions that offer them. Interest rate and fees are often based on the credit rating of the borrower and/or co-signer. While some Alternative Loans have similar features to the Federal Stafford Loan, others do not. The terms and interest rates of these loans vary based on the lender and program that you choose. Therefore, it is important to carefully review the terms of the loan that you are considering. Ask yourself these important questions:
- What fees are charged and how are they calculated?
- When and how are fees paid?
- What is the interest rate? Is it fixed or variable?
- When does payment begin? Can payments be deferred?
- What is the total cost of borrowing over the life of the loan?
- Is a co-signer required?
- Is the interest capitalized and if so, when?
It is important that you explore all other possible financing options before applying for an additional loan!
Before you borrow any amount of additional loan, it is important that you explore all other potential financing options and cost-cutting measures. Although you are not required to apply for federal or state financial aid assistance, we strongly encourage you to do so, as you may be eligible for aid that does not have to be repaid, such as grants, scholarships, or Federal Work-Study. In order to borrow an Additional Unsubsidized Stafford Loan, you must complete the Free Application for Federal Student Aid (FAFSA). By completing a FAFSA, you may find that you are eligible for other types of free financial aid and at a minimum, possibly a lower cost Federal Subsidized Stafford Loan. Consider these other important reminders:
- Apply for financial aid ON-TIME EVERY YEAR. Financial aid funds are limited; therefore, many students find themselves borrowing additional loans simply because they missed their school's financial aid deadline.
- FEDERAL AID FIRST – It is important that if you must borrow, you borrow your Federal Stafford Loan before you borrow an alternative loan.
- Only borrow an alternative loan as a last resort; alternative loans are almost always a more costly option!
- There are many types of financial aid and you should become familiar with them.
- The financial aid office at your school is an important resource for information regarding financing options.
- Don’t underestimate the importance of employment during the school year or during the summer.
- Apply for outside scholarships and ask about scholarships available to students in your major.
- Consider using a tuition payment plan to pay your bill; these plans do not accrue interest and may have a modest sign-up fee.
Before you borrow a loan, you need to think carefully about whether or not there are any expenses you could control. It’s all about choices!! In order to limit the amount that you borrow, you may have to make some difficult choices. According to the Project on Student Debt the average student loan debt for a student in Maine graduating from a 4-year institution is nearly $23,000. That’s a monthly payment $265 for ten years!!
Ask yourself these cost-cutting questions:
- How much do you pay for your cell phone each month? Do you pay excess fees for text messaging and can you really afford the latest and greatest phone? If you also have a land line, can you eliminate it?
- How much do you spend on personal expenses and discretionary spending, such as clothing, entertainment, midnight pizza, etc?
- Do you have a car? If you live on campus, you may want to forego the expense of a car, as you can walk to all of your classes. Gas, insurance, car repairs, parking permits and tickets (some student’s park in the wrong place) all add up.
- do you pay more to have a single dorm room than a double dorm room? If you live in an apartment, do you have roommate?
- Do you set spending limits and stick to them?
- Have you ever received a refund check from your financial aid and spent the money impulsively?
- If you eat on-campus, have you chosen a meal plan that works for you? Don’t pay for more than you can eat. More importantly, if you have a meal plan, use it. Don’t pay for food elsewhere!
- Can you use a dorm or campus computer instead of buying your own? Are you borrowing a loan, including interest, to pay for computer? If you feel you have to have a computer, is it possible to purchase a used or refurbished one? Check with the computer lab on your campus and see what they do with older computers that still work.
- Before borrowing any loan, it is important that you first exhaust all other financing options. Choosing to borrow a loan is a long-term commitment that will impact your future financial plans for many years. Your ability to purchase a car or a home will greatly depend upon the borrowing choices that you make today.
- While borrowing student loans is in investment in your future, they will also put you into debt for years to come. Most students spend 10 or 20 years repaying their college loans. Therefore, it is important that you borrow responsibly throughout your college career and that you track the amount that you borrow, as well as your anticipated monthly payment.
- ALWAYS borrow conservatively!! Borrowing an additional student loan should be considered ONLY as a last resort, after you have researched and considered all other options. Many students borrow more than they can afford to repay, sometimes before they have accessed other more affordable financing options.
Being in control of your finances requires maturity, discipline, persistence, and a clear understanding of "wants" vs. "needs." You must first determine what is most important to you and set goals. Having a clear understanding of what is most important to you will allow you to establish a realistic budget that you can stick to.
Use our Debt/Salary Wizard to help you perform "what-if" analysis with various debt levels and interest rates to determine the salary needed to support this loan debt.
Unfortunately, student loans are not the only type of debt that students assume while in college.
All too often, students entering college are not prepared for the financial decisions that they face. Their lives have changed dramatically; many have moved to a new school (sometimes far from home) and most are enjoying their freedom for the first time. It is also the first time that many students are exposed to intense credit card marketing. Believe it or not, a student age 18 or older, with no income, can get a credit card without a parent's signature. College students often fall victim to the lure of credit cards. On some campuses, credit card companies actually set-up and market on campus, sometimes offering incentives like t-shirts, compact discs, coffee mugs and more.
Consider the fact that Americans under age 25 are filing for bankruptcy faster than any other age group. The consequences of these bankruptcies include the inability to borrow money, even for a car or home, higher insurance rates and the potential inability to move ahead in your career. Don’t fall victim to the ploy of easy money – make SMART decisions about credit to preserve all of your future options!
REMEMBER:
- The average college student graduates with roughly $3,000 in credit card debt. Every time you use your credit card, you are borrowing money that you have to repay. If you don't pay off your entire balance each month, you will have to pay finance charges, sometimes as high as 18%! If you have a $3000 balance, make minimum payments of $25 minimum payment and are charged an interest rate of 18% on the remaining balance, it will take approximately eleven years to pay off this balance and the total interest charged will be approximately $2500!
- Your best defense against this marketing blitz is to learn about the importance of using credit wisely.
- Credit cards can be useful, especially if you have an emergency. But before you use your credit card, make sure you know how much it will really cost you.
The loan application process may differ depending on the type of loan that you are wishing to borrow. It is best to contact the financial aid office at your school for instructions on the loan application process. Sometimes your loan eligibility is included as part of your award letter, other times it is not.
Before any loan is made and any funds can be sent to your school, you must complete and sign a promissory note, often including co-borrower information and signatures. The promissory note authorizes your school to deposit funds to your student account and is the legal document that proves you accepted the terms of the loan and your promise to repay the loan.
Alternative Loans require a credit review, therefore, your school might suggest you seek pre-approval first. The loan application process varies from school to school, so it is important that you understand the process at your school. We recommend that you contact the financial aid office at your school for more information.
Unlike Federal Unsubsidized Stafford Loans, alternative loans are credit-based. When you apply for an alternative loan, lenders generally rely in part on your credit score and/or the credit score of your co-borrower to determine whether or not you are eligible. While your credit score is not the only factor lenders use to make decisions, it is often a key factor in whether or not you are approved. The most widely used credit scores are the FICO scores. Your credit score may influence the fees you may be required to pay and often the interest rate that is available to you, so it is important that you know and understand your credit score. Additionally, you should review your credit report once a year to make sure it is accurate.
Here are some other things for you to consider:
- A pre-approval inquiry for an alternative loan may reduce your credit score by approximately five points each time you apply for credit (depending on the length of time between pre-approval attempts).
- Applying for pre-approval through several lenders may impact your ability to obtain future credit.
- Some lenders base their interest rate and/or fees on your credit score, the lower the score, the higher the interest rate and/or fees.
- A late payment will remain on your credit report for seven years.
- Limited or no credit history may also result in the denial of an alternative loan.
For more information regarding credit scoring and to request a free copy of your credit report, please visit
www.annualcreditreport.com.
If you borrow an additional loan to finance your education, it may result in a significant increase in your monthly loan payments once you enter repayment. While many lenders offer in-school deferments and a six-month grace period before requiring payment, it is important to remember that unlike a Federal Subsidized Stafford Loan, these loans accrue interest while you are in school taking classes and during your grace period. Other important reminders include:
- If possible, pay the interest while you are in school and avoid having interest added to the total amount of your loan. These interest payments are often minimal and paying them upfront will reduce the overall cost of your loan.
- Contact your lender if there are any changes to your name, address, telephone number, enrollment status, school and employment status. Not receiving information about your loan(s) does not relieve you from the responsibility of repaying your loan. You are always better off to make sure that your lender has up to date information and the ability to reach you.
- If you are having difficulties making your student loan payments, DON’T BE AFRAID TO CONTACT YOUR LENDER!! There are options to help you, such as deferment, forbearance, or an alternate repayment schedule.
- Understand that you must repay your loans even if you do not complete your education, or you are unable to find employment.
It's important to understand the types of loans available, the terms of each loan, and your responsibility for repaying the loans. Take note of your rights and responsibilities listed on the confirmation page, provided at the end of this loan counseling session. Your loan application and promissory note also contains your Rights and Responsibilities.
You must repay your loans, even if you:
- do not complete your education;
- are not employed upon completion of your studies;
- feel that the education you received did not meet your expectations.
It is important that you stay in touch with your lender:
- You must tell your lender of changes to your name, address, telephone number, enrollment status, school and employment status
- THE MOST IMPORTANT REASON FOR STAYING IN CONTACT WITH YOUR LENDER: If you are having difficulties making your student loan payments, there are options to help you, such as deferment, forbearance, or an alternate repayment schedule.
You may reduce or cancel your loan at any time before you receive the loan funds.
Try to pay the interest on your loan while in school to avoid a higher principal balance once you enter repayment.
Here are some additional resources you may find helpful: