Signing a promissory note for a student loan may be your first experience of taking on a major debt.
Investing in your future can pay off, but plan carefully to avoid investing in the wrong course of study
and getting too deeply in debt. You must repay your loan according to the terms of your note. Making your
monthly payments in a timely manner establishes you as a good credit risk for future loans. If you default
on your loan, you'll have great difficulty borrowing money for any other purpose—home, car, furniture,
etc. Here are some tips to help you borrow wisely.
| Tip 1 |
Find out from the school's financial aid office what other aid you can receive—grants,
scholarships, and workstudy—before applying for a loan.
|
| Tip 2 |
Ask the school financial aid officer to explain your budget. Make sure you understand the
total cost of attending school, including the estimated living expenses. |
| Tip 3 |
Schools have rules on making refunds to students who withdraw. Know the details of a
school's refund policy before you enroll. It can usually be found in the student handbook or the class
schedule. Schools are required to provide you with this and other consumer information. |
| Tip 4 |
Check into the employment opportunities in the occupation you have chosen before you
enroll in a program of study. Get information about pay for the type of job you'll be seeking when you
complete the program. Will you earn enough to make the loan payments and meet other expenses for yourself
and any family responsibilities? Those who default on student loans often do so after they're disappointed
because the schooling they received didn't lead to the type of job or pay they expected. Disappointment is
understandable, but this doesn't relieve the obligation to repay the loan. |
| Tip 5 |
Borrow only what you need. Remember, you must repay your loan. Use our
Loan Repayment Calculator
to estimate your monthly payment amount based on how much you have borrowed, the interest rate, and the
repayment period. For new borrowers who have no outstanding loan balance, the interest rate is a variable
rate with a cap of 8.25 percent. The rate is recalculated annually and is in effect for a 12-month period
beginning July 1 and ending June 30. Find out the current rate:
Stafford | PLUS |
| Tip 6 |
Federal regulations require any students receiving their first Federal Stafford Loan to
go through what is called entrance counseling before the funds will be released. The school you attend is
required to provide this counseling service. |
| Tip 7 |
Consider getting all of your loans through one lender to minimize the chances of having
to make payments to two or more institutions at the same time. The Master Promissory Note (MPN) can be
used for up to 10 years if you use only one lender. Serial loans for repeat borrowers at eligible schools
can result in a paper-free process. The federal government requires the MPN for all Stafford Loans for
academic periods beginning July 1, 2000, or later. |
| Tip 8 |
Use student loans only for educational purposes. Giving false information, forging any
information, or using loan funds for any purpose other than legitimate school expenses is a criminal
offense. KHEAA will seek prosecution through federal and state authorities for abuse or fraud in student
loan programs. |
| Tip 9 |
When you begin repaying your loan, keep your payments up to date. You have at least 5
years, but generally up to 10 years, to repay your student loans under the standard, graduated, or
income-sensitive repayment options. If you are a new borrower on or after October 7, 1998 (you have no
outstanding balance on loans made before this date), an extended repayment plan is available if your
student loan debt is in excess of $30,000. Under the extended repayment plan, the repayment term can
extend up to 25 years depending on the amount of indebtedness. |
| Tip 10 |
As you make your payments, consider rounding up—a few more dollars paid each month
reduces the overall amount of interest you will pay over the life of the loan. If you pay an extra $10 each
month, $120 annually, the extra money is applied to the principal you owe, which lowers the amount of
interest you will be charged. |
| Tip 11 |
If you have any trouble making your payments, contact your lender immediately. You may
be able to postpone or reduce your payments temporarily through a deferment or forbearance. Before you
enter repayment, you will go through exit counseling, which will explain what kinds of deferments and
forbearances are available. |
| Tip 12 |
Contact your lender or KHEAA about consolidating your student loan accounts. Depending on your balance,
the Federal Consolidation Loan Program can extend the repayment period for up to 30 years. Graduated or
income-sensitive repayment schedules may be available. Many loan types are eligible for consolidation. |
