How to save for college and manage student loan debt

Posted at 8:06 AM, May 03, 2017
and last updated 2017-08-23 19:28:11-04

In May, Laura Hinsch will graduate with a degree in molecular and cellular biology and a minor in Latin American studies from Johns Hopkins University.

She will also graduate with about $70,000 in student loan debt.

Hinsch is one of 44.2 million student loan borrowers in the U.S. owing $1.31 trillion in debt, according to the Federal Reserve Bank of New York Consumer Credit Panel. Hinsch credits financial aid, private loans and on-campus work for helping fund her undergraduate education.

“I had a scholarship and Johns Hopkins had a generous financial aid package,” she said. “It was part of the reason why I was able to go to the school.”

While Hinsch had the added benefit of tuition support, plus guidance on navigating the loan application process from her mom, who’s an educator, not all students are as prepared heading into college.

In Maryland, 58 percent of college students walk across the stage with debt, putting Maryland 15th in nation for college debt, according to the Assets & Opportunity Scorecard. Even worse, 10.4 percent of Maryland borrowers defaulted on their student loans.

JP Krahel, assistant professor of accounting at Loyola University, said the weight of this student loan debt can significantly impact a recent grad’s future, making it difficult to secure a mortgage or buy a car. A little foresight, however, could make a daunting financial experience much more manageable.

“I think part of the reason why people graduate with debt is that it’s psychologically easy to put off the burden of paying for college until after you’re already in there,” Krahel said. “[Students] don’t take the steps that could help them out right now.”

To help students—and parents—gear up for college savings, Robin McKinney of the Maryland CASH Campaign offered these money tips:

  • Talk about college as early as possible. The more time you have to prepare, the better, McKinney said. The Maryland 529 offers an investment plan that helps families save for tuition and fees, with $250 in state funding matched through the Save4College State Contribution Program. “The sooner you start with that, the more that you have in savings and the less you have to borrow,” she said.
  • Get clear about your career. McKinney recommends using the Junior Achievement Build Your Future app, which helps students calculate the cost of their desired degree, and understand how their career choices will translate into a salary. “It’s important to consider what your salary will be once you leave school and if you’ll be able to afford to pay back what you’re borrowing.” McKinney said.
  • List your aid options. The Maryland Higher Education Commission provides information on need-based financial aid funded by the state, from grants based on career to scholarships given by state legislators to those living in their districts. Parents and students can also check out the Central Scholarship organization for information on private scholarships.
  • Understand monthly minimums and conditions. When taking out loans, McKinney urges students to consider how much the amount borrowed each year will break down into a monthly payment. Also, make sure you understand the fine print when borrowing to avoid what McKinney calls “bad student loans.” Know the terms and conditions on repaying the loan, the interest rate and if there’s any opportunity to consolidate. Check out the Consumer Financial Protection Bureau’s Know Before You Owe Campaign for help. 
  • Create a spending plan and communicate. After graduation, stay on top of loan payments by creating a spending plan. Figure out your income, your expenses and how much you’ll have left over to put toward your loan payment each month. Review and refine your monthly spending plan and research available loan forgiveness programs that can support monthly payments after graduation. The biggest tip is to contact your lender immediately if you’re unable to pay.

“Don’t put it off because the longer you go without making payments, the less options you have,” McKinney said. “You start to go into default and then things start to show up on your credit.”

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