Headline: Survey Results: Parents Say Finding College Loans Can Be Confusing
Subhead: But it doesn’t have to be
Tags: College savings, college costs, financial aid, scholarships, student loans, tuition, money, financial aid, money, finances, parent loans
Description: What parents have to say about the college loan process
You’ve done the math and there’s no way to send your child to college without a loan.
In the old days when people needed to borrow money, they went to their local bank, put up some collateral, and presto, loan received in most cases.
Now, the loan process for college is way more complicated and can even give an accountant a migraine.
In an attempt to find out what parents are really thinking about the Student Loan Process, we conducted a survey of the members of our Paying For College 101 Facebook group.
In this survey, sponsored by College Ave Student Loans, here’s what the parents had to say:
Fifty-nine percent of respondents had students who borrowed federal student loans, 29% borrowed a private loan, and 12% took out a Parent PLUS loan.
Nearly 68% said they knew exactly what their monthly payment would be, and 88% said they understood how interest was calculated.
Informed parents will hopefully make better decisions, so those numbers made us happy.
In spite of that, there were still some respondents who were not as well-versed on the process: “We are really clueless on all this loan stuff.”
The majority of parents borrowed less than $5,500 (24%). But 21% borrowed between $5,551 and $10,000, and 18% took out loans for $10,001-15,000.
Twenty-seven percent of parents borrowed between $15,001-30,000, and 10% of parents have loans that exceed $30,000.
Nearly 95% of respondents said that a parent or family member cosigned for the loan.
Know what that means? They are on the hook for paying back the loan if the student doesn’t.
Parents obviously know this, but the survey also showed that parents feel the loan process, from finding an endorser to repayment plans and interest rates, baffling and stressful.
“The amount of documentation,” a parent wrote on the survey. “I’ve bought a house easier than this!”
Interest rates can be tricky. As one parent said, “So many lenders give a potential borrower a large range on interest rates and rarely give the lower end of that range. (It’s) unfortunate that people who actually pay up on loans are the ones who pay these insanely high interest rates because others borrow more than they can handle and default.”
Other parents were even unsure what type of loan they needed: federal student loan, private student, or parent loans or a federal Parent PLUS loan.
“I don’t understand the EFC!”
Some parents wondered about their expected family contribution (EFC).
For example, one parent said her EFC was $7,000 but she had to get a $20,000 loan and of course that doesn’t include the interest that will accumulate.
The EFC, which is listed on the Free Application for Student Aid (FAFSA), often is perplexing to parents.
Colleges take the information from the FAFSA to calculate your EFC with a formula established by Congress.
Cost of Attendance (COA) minus Expected Family Contribution (EFC) equals the amount of Financial Need.
All of your taxed and untaxed income, including your student’s income, assets like savings and benefits, including unemployment or Social Security, are used in the EFC formula.
“So my family contribution is more like $40,000 for the year not anywhere near $7,000.00,” she wrote. “I don’t understand what we are doing wrong not getting any financial assistance as I am a single mom making $48,000 a year.”
Many parents were confused about how much to borrow.
Less is obviously better, but there are many factors to consider: estimating the total cost for college, borrow for only what your student really needs (tuition, books, room and board – not trivial things), research earning potential after graduation, research various types of loans, and think long-term about what you or your child can ultimately pay back.
Here’s a tip: If you can, pay off interest on loans on starting while your student is in school.
One parent in our survey didn’t know that origination fees existed.
An origination fee is the upfront fee charged by a lender for processing a new loan application. These fees are not fixed and can be negotiated especially if you have good credit.
Student Loans are Parent Loans
Parents also are confused about the name “student loans” because they are really parent loans.
Students generally have no credit history, which means they cannot – usually – borrow money.
Instead, parents or another relative have to take out the loan and financial help is based on their income, not the student’s.
If parents have bad credit, this often means the student won’t qualify for some loans.
“Many families already have enough debt and now need to add to it with consigning,” one parent wrote. “Middle income families just do not qualify for anything today.”
Many of the respondents had different ways to approach the college funding situation…
“Our student would need a cosigner, so we decided to fund her first year and she will have to get scholarships to fund the next 3+ years.”
“We chose to split the cost of college with our child so she will have a better chance of paying off er federal student loans earlier.”
The best advice for parents about to embark on the financial aid journey?
Do your homework. Research loans online. Learn the difference between federal and private loans. Ask questions.
“We treated it like a house mortgage, shopping for rates, consolidation, etc.,” a parent said.
“Also, people need to understand that what worked for one family will not work for another family as there are just too many moving parts to this whole process.”
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This post is sponsored byCollege Ave Student Loans.