Start with a general idea of your costs to determine the impact that paying for a college education will have on your family. These include the cost of applying to college, which is sometimes higher than many parents expect. You could be out several thousand dollars before the first acceptance letter even arrives when you add up the costs of campus visits, tests, application fees, and outside professional advice. Then there are the actual costs of attending.
Out-of-Pocket College Costs
The cost of attending college can drive up out-of-pocket cash flow. Even students who receive a “full-ride” scholarship need to have a certain amount of money available for personal expenses. You’ll have to take travel expenses to and from the college into consideration, as well as voice and data plans, books, food, and living expenses if your student doesn’t live on campus. Travel-abroad programs, entertainment options, out-of-pocket medical costs, and myriad other items can quickly add up to a substantial amount of money.
The Cost of Borrowing for School
Then there’s the cost of the education itself. Any remaining amounts are often covered by student loans. The amount of financial aid received can reduce the “sticker” price considerably, It might feel as though these loans are “free” because payments are “out of sight, out of mind” during the college years, but the amount due rears its head shortly after graduation. Amounts will add up quickly if your student drops out, takes longer to graduate, can’t find a job, or doesn’t earn enough.
The Amount Borrowed
Undergraduates are eligible to borrow between $5,500 to $12,500 in Direct Subsidized and Direct Unsubsidized federal student loans per year, as of 2022. The amount depends on their financial situation and year in college. Graduate students are eligible for up to $20,500 in Direct Loans. Parents can also borrow money separately under the PLUS loan program. Those amounts can really add up over the course of four to five years, and the student could graduate with the family in debt for over $50,000. And this doesn’t count any private loans that might have been accessed.
Student Loan Fees
Most families don’t look at the cost of fees associated with student loans. Loan fees for Direct Subsidized and Unsubsidized Loans are 1.057% first disbursed from Oct. 1, 2020, to Oct. 1, 2022. Fees for PLUS loans are 4.228%. Private student loan lenders may have different fee structures. An extra $10 in fees per $1,000 borrowed might not seem like a lot but could add hundreds of dollars to the amount you borrow.
Interest Rates
You must determine whether interest is being added to your loan during the college years. The federal government covers that cost for Direct Subsidized Loans, but interest is building and being added to the amount you owe for Direct Unsubsidized Loans, PLUS, and most private student loans. Interest rates for 2021-22 are 3.73% for undergraduate federal student loans. They’re 5.28% for graduate students and 6.28% on PLUS loans. You can add between $27 and $53 per $1,000 borrowed each month your loan is outstanding, and you’ll see how quickly these amounts can grow.
Late Fees and Penalties
There are also late fees and penalties that can be assessed for missing payments or not paying on time after you begin making payments.
The Bottom Line
The average class of 2021 graduates was estimated to hold $31,100 in student loan debt, with an average monthly student loan payment of $391, according to the Education Data Initiative in January 2022. Paying around $400 every month out of your take-home salary can severely limit your post-college options. You might not be able to attend grad school. You might have to live with your parents longer, or you might be forced to put off buying things you’ve always wanted. It will certainly be more difficult to save and invest your own money. Put student loan costs together with the costs of applying and attending, and it could be a real eye-opener. Look carefully for steps you can take to lessen out-of-pocket costs, such as extra forms of income, family savings accounts, and private scholarships.
