The Massachusetts Educational Financing Authority, or MEFA, a not-for-profit college financing resource, suggests that college students and their parents take their time and research their options before deciding on a plan for paying for college.
Here are 8 steps MEFA suggests student-loan seekers take before signing a loan agreement. Next
1. Plan for the entire year
Paying the balance due often comes from a combination of sources: savings, an interest-free monthly payment plan, and loans. It's a good idea to make a plan for the entire academic year instead of one semester at a time. You can sign up for MEFA’s free e-mail service to keep on track and receive tips. Next
2. Look for federal loans
Take advantage of low-interest federal student loans, especially the Direct Subsidized Loan. Interest is not accrued while the student is in school. Any student who completes the FAFSA, or Free Application for Federal Student Aid, is eligible. If you haven't filed the FAFSA, it's not too late. Go to fafsa.gov to complete a free application.
Related: 10 tips to filing the FAFSA Next
3. Investigate interest-free plans
An interest-free monthly payment plan is one of the best kept secrets in minimizing the amount a family borrows. As the name indicates, they're interest free, they usually require a small fee, and many colleges offer them. See how much you can save with an interest-free payment plane with MEFA’s monthly payment calculator. Next
4. Understand fixed vs. variable
For families that borrow (and many do), be sure to understand the difference between fixed and variable interest rates. Variable interest rates are tied to indices that right now are at an all-time historic low. That means that if the rates go up, families will need to have flexibility in their budget to accommodate rising monthly payments. The amount you pay on a fixed rate loan never changes, no matter what happens to rates in the future. Next
5. Know your interest rate before signing
Many college loan lenders practice tiered pricing, which means the low advertised interest rate only goes to borrowers with the highest credit score. Before you sign on the dotted line, be sure to know exactly the interest rate you will get, and if there is an interest rate cap. Next
6. Know the total cost of borrowing
The federally required Application and Solicitation disclosures provide the lowest and highest potential starting interest rates, whether the loan has a fixed or variable interest rate, the interest rate cap (if any), and the total cost of borrowing over the life of the loan. All nonfederal college loan lenders must provide this document, so you know exactly what you're applying for.
Use MEFA's loan calculator to figure out the costs of borrowing. Next
7. Consider a co-borrower
Students who want to apply for a college loan may find that applying with a co-borrower strengthens their application and still allows students who may not yet have a credit history to establish credit. Next
8. Keep track of changes in your family's finances
Be sure to communicate changes in your personal financial situation to the financial aid office. If a parent was laid off, has had a change in income, or if your family has incurred significant medical bills, talk to the financial aid office.
If you need more help, MEFA also offers a low cost, fixed interest rate loan program and advice from college financing experts by phone at 1-800-449-6332. To get more information visit www.mefa.org. Back to the beginning
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