As college students everywhere prepare to head back to class, they and their parents are also facing bills for tuition and other college expenses.
It’s not uncommon to take out student loans to pay for school. But the interest rate you will pay for those loans is up this fall. Vicki Beam is a Financial Counselor with in Traverse City. “A lot of them are probably getting their bills right now and figuring out how to pay them.”
Carol Crawford is a parent of college senior, and has another student coming up fast in high school. “My oldest son is now 20. And he is at Michigan Tech,” she says. The thought of paying for college is hard to escape. “How are we going to pay for this? We knew student loans are out there. We hoped we didn’t have to do that, and he definitely didn’t want to do that. He didn’t want to be saddled with that when he graduates.”
Crawford’s oldest son did dual enrollment through NMC, getting some college courses for free while still in high school. “He did dual enrollment in high school and that helped. So he had an associate’s degree from NMC before he ever left Traverse City. That helped tremendously, financially,” she says. “He also works full time. He’s very motivated. We’ve helped him where we needed to but luckily we didn’t need to get any student loans.”
And even if tuition itself isn’t going up this year – the cost of student loans is. That’s because of the interest rate hikes from the fed, which is raising rates across the board. “Part of how they pay typically is with student loans. And they’re now finding out , as have all the other interest rates out there,” Vicki Beam says. “A year ago it was 3.73%. And the interest rate for the student loan is 4.99%. So it’s gone up a little more than a percent.”
It means it will cost more to pay back those loans – although it’s still 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 $5500, sophomores $6500, and then junior and senior year $7500 each.”
“The important thing to know is your student will probably end up leaving with four individual loans that will have four interest rates. That interest rate does stay with the loan for the duration until it’s paid off,” Beam says. “The Parent PLUS loans went up this year as well. And we’re noticing private loans… that you co-sign, those are dependent on the parent’s credit score. So those rates can be quite high, (even) double digits.”
Beam says it’s daunting for parents and students. “You think about potentially borrowing $80-$100,000 for four years.” She says scholarships and grants are out there, even for current students. “We hear a lot of scholarship boards (say) that they don’t have any applicants. And so they don’t give that money away. They need to have somebody apply to get the scholarship.”
Many college graduates have seen a bit of relief from having to make loan payments during the pandemic. But those days may be coming to an end. “We’ve not had any interest being charged, or any loans requiring payment since COVID. March of 2020. That is set to expire at the end of this month,” Beam says. That pause might still be extended, but there’s no word yet. And it’s hard to predict what interest rates will do in the years ahead. “It could go up. And if interest rates were to go down once somebody’s out of school they may want to look at refinancing to try to consolidate and end up getting a lower interest rate.”
As for the talk among politicians about forgiving student loan debt? “I would say whatever you’re borrowing you should plan on repaying. If it is forgiven that’s an incredible gift,” Beam says.
Michigan College Planning and free consultations at their Traverse City office.
The Michigan Department of Treasury’s MI Student Aid Team is asking students and their families to be alert and informed when considering student loans.
“Michigan students and families cover a considerable amount of their higher education costs,” State Treasurer Rachael Eubanks said. “When student borrowers become their own financial advocate, they can better understand how to manage and leverage the financial aid they receive. Please carefully consider only accepting those loans that are needed. The choices made by students today will have outcomes later in life.”
To make the best decision regarding student loans, the MI Student Aid team recommends seven best practices when considering student loans:
- Complete the Free Application for Federal Student Aid (FAFSA). Colleges use information from the FAFSA to determine their financial aid awards. By completing and submitting the FAFSA, students maximize all their financial aid options.
- Understand loans must be repaid. Not all financial aid included in a financial aid award letter is free money. Many financial aid awards will include federal student loans. Unlike grants and scholarships, loans must be repaid with interest.
- Check the amount of interest being offered on a loan before accepting it. Federal student loans, Parent Loan for Undergraduate Students (PLUS) loans, and private loans have varying interest rates and repayment terms. Before taking out loans, students should identify and compare each loan’s interest rate and then accept the loans with the best interest rates and repayment terms.
- Only accept the amount you will need. Students can either turn down a loan or request a smaller loan amount, and the financial award letter should include instructions on how to do this.
- Be aware of loan scams. In a typical student loan scam, a scammer will ask for banking information from a student searching for loans. The scammer typically claims they will use the information to make a direct deposit into the student’s account in return for upfront fees paid through gift cards. Instead, the scammer accesses the student’s banking account and withdraws funds.
- Visit the school’s financial aid office once a semester. Even though students may not have to begin repaying their loans while they are in school, students should not wait to understand their responsibilities. Students should know the status of their college’s or university’s student account and keep track of the types of aid they receive. By making this a habit, students can avoid overborrowing and stay within their budget.
- Create a account. The website, managed by the U.S. 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 of each one and total interest accumulated to date. Students can also look over different repayment options, estimate monthly payments and learn who their loan servicer is for when repayment begins.
For more information on Michigan student loans, . For more information from the Michigan Treasury on how to be informed when considering student loans,