With 18-year-olds taking out $20,000, $50,000 and $100,000 in student loans before they even get a paying job, you'd assume that the powers that be would make it a point to clarify for them what exactly that means. You know, like the detail about having to make payments of more than $1,000 a month after they graduate!
Yet, up until now, the opposite has actually been true.
This is why graduates who are saddled with exorbitant payments often say that they didn't understand their options, didn't know that there was a difference between private and public loans—and didn't envision what repayment would even look like. Translation: Getting a loan has been too easy and too thoughtless a task.
Come April each year, if you have (or your child has) been applying to college, you'll start to receive acceptance letters—hopefully packaged along with the CFPB's recommended shopping sheet. (At the moment, schools aren't required to substitute the sheet for their own financial aid award letters.)
Here's what the CFPB's helpful document lists:
- How much the school will cost, including tuition and fees, housing, meals, books and additional supplies, transportation and other costs
- Gift aid available to you that doesn't require repayment, such as grants and scholarships
- What you'll have to pay after factoring in the gift aid
- Federal loans available to you
- How much the school calculates that your family can pay, based on your FAFSA
- The graduation rate, loan default rate and median amount borrowed at that school
- Private student loan options—in teeny print, all the way at the bottom
The message is clear: Max out your gift aid, work study and federal loans first. If you have any remaining tuition to pay at that point, only then should you turn to other sources as a last resort.
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Coming to a Mailbox Near You?
More than 500 colleges and universities have agreed to use the CFPB's sheet this year—and, hopefully, that number will only rise.
In an ideal scenario, if a student receives four different acceptance letters, they can then compare the accompanying financial aid shopping sheets to get a clear picture of what each school means for their finances.
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With some 1.5 million students making one of the most important financial decisions of their lives this year, let's hope that they approach the choice armed with a simple sheet that could have a significant impact.