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7 Steps to Covering Your College Financing Gap

If your child’s college expenses are higher than anticipated, you may need additional financial help. Here’s what you need to know before you take out a loan.

If you have a child who’s in college or planning to attend someday, it’s likely that you and/or your child will need a loan to pay for school. About 61% of students who earn bachelor’s degrees from public and private institutions graduate with debt, borrowing an average of $28,100, according to the College Board.

And expenses go far beyond tuition and fees: You also have to pay for room/board, transportation, food, computers, dorm/apartment furnishings (you can’t use cheap milk crates for everything, y’know) and an assortment of unexpected needs that crop up.

Fortunately, there are several financing options available, such as the federal Stafford and Perkins loans. And then there are private alternative/supplemental loans provided by banks, credit unions, state agencies or the schools themselves, often collectively and simply referred to as “private” loans.

Experts recommend exploring private education loans only after you’ve exhausted your possibilities on the federal side due to the following factors:

  • Federal loans don’t require payment until graduation.
  • Federal loans are fixed, often at lower rates than private loans. Repayment on a private loan begins while the student is in school, but lenders may offer in-school deferment options.
  • If you qualify for a need-based subsidized loan, then the government will pay all of the interest while the student is enrolled at least half-time. Private loan interest isn’t subsidized.
  • If you and/or your student encounter difficulties making federal debt payments, there are options for lowering the burden or temporarily postponing it. Private lenders don’t necessarily provide this.
  • Federal loans offer income-based repayment and loan forgiveness for teachers and other public-service vocations. (Read our article “Are You Eligible for Student Loan Forgiveness” for more information on that topic.)

“The federal loans are more affordable, more available and have better repayment terms,” says Mark Kantrowitz, senior vice president and publisher at, a site that specializes in planning and funding for college. “So, if you must borrow, do so with a federal loan first.”

Through his own analysis of available data, Kantrowitz estimates that seven of 10 students who earn bachelor’s degrees from public and private institutions graduate with debt, borrowing an average of $35,000 in federal and private student loans.


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7 steps to a private education loan

Although federal loans are ideal, many families actually aren’t eligible to receive such a loan, even if they still have to borrow. Or, they may be seeking additional funds to cover what federal programs don’t. In these cases, private loans can be explored.

The following steps can help you evaluate whether to get a private education loan and how to get one that’s right for your situation:

1. Determine your “need equation.”

Sean Moore, a certified financial planner and founder of SMART College Funding, says it’s critical for families to avoid leaping at a private loan, especially if they learn later that it wasn’t necessary in the first place. After all, you can’t “undo” the interest charges.

“Parents and their students have to sit down and calculate the true financial need,” Moore says. “Map out all factors contributing to the cost of attendance. You’ll want to include tuition, fees, books, supplies, room, board and an allocation for personal incidentals and transportation costs. Then project the expected household contributions available to pay for these. With this, you can accurately assess what you should borrow, if anything.”

You could plug your numbers into a calculator like this one to get a sense of what your expenses will be.

2. Research your options.

Many—but not all—states administer loan programs, but mainly as a lender of last resort. “But even if they don’t, each state has a department or commission that can be quite helpful in assisting students,” Moore says. You can find each state’s department here.

A school website may list lenders which it suggests or recommends. “But don’t limit yourself to those,” says Mary Johnson, financial literacy expert. “Look at the big players in the field—like Sallie Mae or Wells Fargo—as well as smaller banks and credit unions offering a better rate.”

NEA Member Benefits offers the NEA® Smart Option Student Loan® by Sallie Mae®, which helps students and their families pay for undergraduate or graduate college expenses that aren’t covered by scholarships, grants or federal loans. Learn more how the NEA Student Loan Program can help you cover college costs.

3. Improve your credit profile.

If you need to go the private route, do everything you can to qualify for good credit. Private loans are most commonly packaged as credit-underwritten vehicles, and your child probably hasn’t established a longstanding history of strong credit.

“The vast majority of the loans require a credit-worthy co-signer,” Kantrowitz says, and that likely would be you.

4. Calculate the real price tag.

Private loans don’t cover everything you need, so before you sign any documents, you’ll have to figure out the real total costs, including which fees will apply, Moore says.

“The fees extend beyond the interest rate,” he says. “While Loan A may look more attractive, Loan B may actually be cheaper in the long run due to lower fees.”

Moore urges parents to carefully read and evaluate the fine print. “A great deal of lenders will advertise one rate while student is in school, and then charge a higher rate upon graduation,” he says. “In addition, any variable rate will result in significantly increased interest at some point in the future.”

5. Don’t forget to add in your interest.

Private loans usually last anywhere from five to 25 years, with 15 being the most common. Interest rates will run the range of 2.25 percent (yippie!) to 16 percent (ouch!). High rates can make that loan end up being much larger—and more difficult to pay off—than you realized.

“Families also should know that many lenders require payments to begin immediately upon disbursement,” Moore says.

6. Get started on the paperwork.

Any student loan—federal, private or state—requires the submission of a Free Application for Federal Student Aid (FAFSA) form. “This will determine your Expected Family Contribution (EFC) to expenses, along with whatever need-based aid could be available via federal programs,” Moore says.

Private schools may ask for a College Scholarship Service (CSS) profile as well, which can identify need-based financial-aid solutions.

7. Lay out a post-graduation debt plan.

Aim for your child to graduate with no more total debt than they’d likely earn as an annual starting salary. That way, he or she should be able to pay it off within 10 years. If it’s above that guideline, you and your child may have to pursue an alternative payment plan.

“This can include income-based repayment or extended repayment, which stretch out terms to make it more affordable month-to-month,” Kantrowitz says. “It will, however, increase the interest paid. And it means your adult child could be dealing with the loan until his or her own children are in college.”

Find out more about the NEA® Smart Option Student Loan® by Sallie Mae® here.

Cover unexpected education expenses


Get low rates, flexible payment options and more. Apply for a low-rate student loan from Sallie Mae.


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