When determining how to pay for this massive life event, parents are often as confused as their students. With that in mind, here are four things parents need to learn now about student loans before anyone signs on the dotted line:
- Interest Rates Matter: Don't just look at the amount you are borrowing and the monthly payment amount when comparing loans. It is important to find out the interest rate on the loan as well. Then you must determine if it is a fixed or variable interest rate. While a fixed rate will stay the same for the life of the loan, a variable rate can change as the prime interest rate changes. Since rates are relatively low now, there is the possibility that they may increase and a variable rate loan will end up costing you more than anticipated. You must also determine if interest is deferred while your student is in college. If not, a significant amount of interest can accrue in four years.
Don't Wait Until Graduation to Think About Repayment
Far too many parents make the mistake of not discussing money with their students while they are still in college. You must take the time to sit down now and discuss their obligations regarding student loans. Explain interest rates and payment amounts so you can think about a repayment plan together. Make sure your child understand how much money you are willing to pay and how much you expect him or her to pay. Understanding financial obligations now will help your student make smarter choices about the choice of college and field as study, and budgeting needs. When a parent becomes a student, everyone gets smarter!