GOLDEN VALLEY, Minn. -- Seeing their kids off to college is a dream many parents share. With more than 70 percent of college students relying on student loans to cover some of their costs, the financial future of students and families can be strained by accumulating student debt.
Dan Ament, financial advisor with Morgan Stanley, joined KARE 11 Sunrise to discuss the importance of planning ahead.
In the U.S., the total student loan debt is $1.48 trillion, which is about $600 billion more than U.S. credit card debt. There are 44.2 million Americans with student loan debt.
How to deal with the strain of student debt:
- Interest Rates and Fees – The current Fed direct undergrad loan rate is 4.45 percent, direct grad loan 6 percent and direct PLUS loan 7 percent. Federal loan interest rates are set each year based on the 10 yr. U.S. Treasury Note, effective July 1 to June 30 the following year. The interest rate then stays fixed for the life of the loan. Additional fees charged on each loan disbursement: Fed Direct Loans have a 1.066 percent fee and Direct Plus loans have a 4.264 percent fee charged.
- Estimate School Debt BEFORE Selecting Your College – Closely examine your estimated out-of-pocket cost for the various schools your student is considering. These costs would include amounts you pay from income, savings and loans. Use available student loan calculators to project the likely student debt needed for attendance and the estimated future payments. The biggest question is not whether you can borrow enough to cover the cost, but rather, will you and your student be capable of repaying the loans in a timely fashion after graduation? Check out the student loan calculator here.
- Know the Risks of Co-Signing – An estimated 90 percent of undergraduate student loans included a co-signer in the 2015/16 academic year. A parent co-signing on a loan is assuming the responsibility along with their student to repay the loan. If payments aren’t made, the co-signer is on the hook along with jeopardizing their credit score and credit history. Here are 5 things to do before co-signing a student loan.