Student Loan Advice: Bridging the College Funding Gap

3 minute read

Many students realize the summer before freshman year that their financial aid package does not fully cover the cost of attendance. If you find yourself in this situation and need additional funds, you're not alone. This guide offers essential advice to help you secure the best possible loan and stay on track with your academic and career goals.

1. Maximize Free Financial Aid First

Before borrowing, maximize every source of money you don't have to repay:

• Apply for Every Scholarship: Earn money that helps reduce the need for loans.
• Accept Grants and Work-Study: If your financial aid offer includes grants or a work-study program, accept them.
• Utilize Savings and Contributions: Use your savings (from a part-time job or summer work) and accept financial gifts from family.

Your goal should be to cover as much of your college costs as possible without taking on debt.

2. Understand Your Financial Aid Letter and Borrow Only What You Need

You have completed the Free Application for Federal Student Aid (FAFSA) and received a letter detailing your federal aid options. Remember, all student loans, including government loans, must be repaid with interest.

• Compare Options: Compare federal loan options (subsidized and unsubsidized) with private or alternative loans to secure the loan with the best terms and the lowest interest rate.
• Borrow Conservatively: Interest accrues over time, making your monthly payments higher the more you borrow. Borrow only what you are confident you can repay.
• Use Tools: Consider using resources like the NC Assist’s Smart Borrower Calculator to estimate a responsible borrowing limit.

3. Consider Asking a Responsible Adult to Co-Sign

Federal student loans are generally accessible for undergraduates as they do not require a credit check. However, most 18-year-olds lack an established credit history needed to qualify for the best interest rates on private loans.

• Qualifying for Better Rates: A responsible co-signer with a strong credit history, such as a parent or trusted relative, can help you secure a lower interest rate on a private loan.
• Shared Responsibility: Select a co-signer carefully and establish a clear agreement on who is responsible for payments. Missed payments put both your and your co-signer's financial reputations at risk.

4. Manage Interest Accrual

Students often "defer" payments until after graduation, but this does not stop interest from growing on most loans.

• Understand Capitalization: Unless you have a subsidized federal loan, interest accrues while you are in school. This unpaid interest is later "capitalized" (added to the principal balance), meaning you end up paying interest on the interest.
• Pay Interest While In School: If you can afford it, pay off the accruing interest while in college. This action could save you thousands of dollars in the long run.

5. Set Up Automatic Drafts for Payments

Setting up automatic payments has multiple benefits:

• Avoid Missed Payments: Auto-draft protects your credit history, which is crucial for future financing like car loans or mortgages.
• Get Discounts: Many lenders offer a rate reduction for borrowers who enroll in auto-draft payments.

Consider NC Assist Student and Parent Loan Options

As a non-profit lender, NC Assist focuses on helping North Carolina students pay for college while keeping costs low. They offer competitive rates, no application fees, and no penalty for early repayment.

Visit NCAssist.org to learn more about the loan options available to students and their parents and find the right loan for your needs.