What are the most common mistakes people make when financing their post-secondary education?
The most common mistake, I believe, is that when students are accepting the student loans offered in their financial aid package it is assumed that the entire loan amounts have to be accepted. Award packages, which invariably include student loans, are usually based on the total cost of attendance. (An itemized cost of attendance should be available on the school's website or through the financial aid office.)
Tuition and fees, which are "direct" costs, are constant. One cannot change the amount that is charged on this line item. The "indirect costs" are what the average student might spend on living expenses. So, it is important to look at the line items given by the school for each category of room, board, transportation, and miscellaneous and see what may actually be needed and try to see where costs can be minimized. For instance, if a school's room and board is based on a double room, consider a triple room which can bring substantial savings. If attending a commuter school, the room portion is based on what the average student might spend on rent. If a monthly budget is less than the average rent, adjust the accepted loan accordingly. At the same token, if car ownership is not in the picture and instead, there is public transportation, transportation costs may be less.
It is not uncommon to also overlook outside/private scholarships/grants that may be available. There are a number of search engines where a student enters information about him/herself and the engine does a search for all scholarships for which the student may be eligible. Do not go for those "scholarships" where you win by twittering the most on a topic given by the scholarship sponsor. Most scholarships require a topic essay and range in amounts from $500 and up. $500 does not sound like a lot, but it can pay for books. Any scholarships/grants that are received reduces the amount of loans that may be needed to pay for an education.
Never pay for somebody to complete your Free Application for Federal Student Aid (FAFSA) or for a person/company to search for scholarships. FAFSA's can be completed easily enough by an individual, but if you get "stuck," contact the FAFSA toll free number or request help from your financial aid office. Even if you are at the point of choosing a school, most financial aid offices would be more than happy to assist.
As an aside, when comparing scholarships and grants that schools may award (federal and institutional), it is very important to consider the "net" price that would be paid out of pocket and/or with financing. A school whose cost of attendance is $30,000 may award $10,000 in grants while a lower cost school may award only $5,000 but the cost of attendance is only $15,000 to begin with. The net cost of out-of pocket and/or student loans would be $10,000 at that lower cost school and $20,000 at the higher cost school. The federal government has mandated that schools provide "net price calculators" to determine the true cost of the school to the student.
Finally, keep track of what is being borrowed. The National Student Loan Data System for Students
provides detailed information of everything you wanted to know about federal loans but were afraid to ask. Up to date information on disbursed loans, the interest rate for each loan, and your loan servicer who is your primary contact once your loan is disbursed are available on this website.
What should people consider when applying for student loans?
Students should consider the interest rate whether it be fixed or variable, any fees involved (federal loan fees are deducted by the federal government directly from the amount that a student borrows), and the fact that a student loan does have to be repaid over time. Private/alternative loans often have much different repayment terms, flexibilities in changing repayment plans (how much one has to pay over a length of time), and forgiveness/cancellation provisions than the federal loans.
A student should also consider what career they are considering and certainly, the typical salary for the given area of interest and the status of the job market in the sector of interest. These factors can help one determine if it is feasible to have to include a loan payment in a monthly budget. Student loans are a long term investment, but education is something that cannot be taken away. StudentAid
is an excellent website sponsored by the U.S. Department of Education that does not require a sign in.
What programs or other steps would you recommend to anyone having trouble making their student loan payments?
Some employers, although there are not many, offer repayment of student loans as a benefit. If you are considering working in public service, there is the Public Service Loan Forgiveness Program. If you work in the public service sector as defined by the IRS (501-c3 organization) for 10 years or work for any federal or state entity or certain non-profit agencies, student loans would be forgiven after 10 years of on-time payments under an income based repayment plan. Even so, income based repayment plans are available for everybody and vary by whether discretionary income or income to debt ratio are considered. Www.studentloans.gov, which is accessible to any student who has completed a FAFSA (FAFSA sign in information is required) has a listing of all available repayment programs. Payment calculators are also provided.
Even if you think that you are going to have problems making a payment, contact your servicer. This is the company that has contracted with the federal government to service your loans. There are many options, including temporary forbearance, deferments, and different repayment programs to help a student's loan not become delinquent and then ultimately become defaulted.
What impact, if any, does the large and growing amount of outstanding student loan debt have on the economy as a whole?
The total amount of outstanding student loan debt, I believe, has a two-fold impact on the economy. The growing debt is in part due to the increase in the number of students enrolled in post-secondary education. The more students, the more aggregate debt. This has a positive impact on our economy in that students who graduate typically are higher wage earners and thus, in spite of student loan debt, have more discretionary income to spend. The down side is if a student does not succeed and leaves school with debt, this lowers ones discretionary income to spend because of the added cost of having student loan debt.