How to Calculate Your Actual College Debt

3 minute read

Getting into college is an accomplishment, but understanding the financial aid offer letter can be confusing. These documents are often non-standardized and packed with jargon. To make a smart choice, you need to look past the "total amount" and understand the actual cost of your future debt.

1. Identify "Free Money" vs. "Borrowed Money"

Look for your Net Price, the amount you pay to attend a college for one year. While the Cost of Attendance (COA) is the advertised price. The Net Price is what remains after you subtract your gift aid, money you don't have to pay back.

• Gift Aid: This includes grants and scholarships. It’s "free money" that doesn't need to be paid back.
• Self-Help Aid: This includes student loans and work-study. Keep in mind that work-study is an opportunity to earn money through a part-time job, but it isn’t a guaranteed check.

2. Decode the Loan Labels

If you see "L" or "LN" on your offer, it’s a loan. The most important distinction is between subsidized and unsubsidized federal loans:

• Direct Subsidized (Sub): The government pays the interest while you’re in school at least half-time. This is the best type of loan to accept.
• Direct Unsubsidized (Unsub): Interest starts "accruing" (growing) the moment the loan is sent to your school. You are responsible for all the interest from day one.

3. Compare the Rate Types

Private lenders and some federal options (like Direct PLUS loans) will offer different interest structures:

• Fixed Rates: Your interest rate never changes. This gives you a predictable monthly payment for the life of the loan.
• Variable Rates: These interest rates can fluctuate over the life of a loan based on economic conditions. They might start lower than fixed rates but can rise over time, making your monthly payments unpredictable. Unlike federal student loans, which always have fixed rates, variable rates are only offered by private lenders.

The NC Assist Student Loan program is a state-based private lending option designed to help North Carolina students and families bridge the gap between financial aid and the total cost of attendance. Offered by the nonprofit College Foundation, Inc. (CFI), these loans feature competitive fixed interest rates with no application, origination, or prepayment fees.

4. Review the "Fine Print" Disclosure

Before you sign a Master Promissory Note (MPN), you’ll receive a Disclosure Statement. Pay close attention to:

• Origination Fees: These are processing charges. Federal lenders deduct a small percentage from your total loan amount before the funds are even disbursed to your school.
• Grace Periods: For most federal student loan debt, you have a 6-month grace period after graduating or leaving school before your first monthly payment is due.
• Repayment Terms: This is the timeframe you have to clear the debt, usually spanning 10 to 25 years, depending on your specific repayment plan.

Remember: You Don’t Have to Take It All

Just because a school offers you $10,000 in loans doesn't mean you must accept the full amount. Calculate your actual needs, such as tuition, books, and living costs, and accept only what you truly need.