If you’re planning on going to college, there’s a good chance you’ll need to take out student loans to do it. The most important thing to understand about student loans is that they are loans — not free money. Like any loan, they need to be paid back, plus interest. Make sure to apply for as many scholarships and grants as possible in order to minimize your student loan need.
It is recommended that you spend no more than 8% to 12% of the income you will earn to repay your student loans. This will typically allow you to meet other obligations after you complete your education like insurance, rent and other expenses. As you decide on a major, do a little research to determine the starting salary you will potentially earn. Insights.nd.gov and North Dakota WIN (Workforce Intelligence Network) are tools for you to use.
This calculator will help you determine the upper limit of student loans you should take out based on the salary you will earn with your major. According to the Institute for College Access and Success, the average amount of student loan debt for a graduating college senior in the United States was $28,650 in 2017.
Where to get student loans
The first place to get student loans is the federal government. The financial aid award letter you receive from a college after you complete the FAFSA will tell you how much in loans you can get from the federal government.
If you still need money to fill the gaps, consider private student loans. In North Dakota, Bank of North Dakota provides state-sponsored student loans at favorable rates to North Dakota residents, whether attending college in or out of state, and to out-of-state residents attending college in North Dakota. Residents of Minnesota, South Dakota, Wyoming, Wisconsin and Montana may also access Bank of North Dakota student loans regardless of where they attend college, but the interest rate and fees are different. This also applies to students attending schools in any of these states. You are strongly encouraged to maintain all of your checking and savings accounts with your local bank or credit union when taking out a student loan at Bank of North Dakota (BND). Also, since you cannot take out loans for cars and other personal items at BND, you never need to worry about us asking for you to transfer that business.
Several local financial institutions may also offer private student loans. Before deciding which private student loan you want, make sure to compare interest rates and repayment options. Because BND is a state agency, the rates are typically better.
Types of federal student loans
Subsidized versus unsubsidized
Students with financial need may qualify for subsidized loans. This means you don’t pay interest on the loan while you’re in college at least half time; the federal government helps to pay, or subsidize, the interest during that time. The interest on an unsubsidized loan begins accruing immediately when you take out the loan.
For undergraduate students with financial need
For undergraduate and graduate students; do not need to demonstrate financial need
For undergraduate, graduate or professional students with exceptional financial need
For eligible parents of dependent students and students pursuing a graduate or professional degree
BND Student Loan for college
BND has a state-sponsored student loan for college to help fill the funding gaps when scholarships, grants, savings and federal student loans aren’t enough to pay for college.
North Dakota residents
For North Dakota residents attending college in North Dakota or attending an eligible college out of state, there are no fees and you receive a decreased interest rate.
Out-of-state residents attending a North Dakota college
For out-of-state residents attending a North Dakota college, there are no fees and you receive a decreased interest rate.
Residents of – or students attending school in – Minnesota, South Dakota, Wyoming, Wisconsin and Montana
For residents of Minnesota, South Dakota, Wyoming, Wisconsin and Montana attending school in any state other than North Dakota or for students attending schools in any of these states, there is a 3.75 percent administrative fee and an increased interest rate.
The loan truth
Not many things in life are free. If you borrow money, you need to repay it with interest. The longer it takes to repay a loan, the more it costs.
You start paying for student loans six months after you graduate or leave college. Make sure the career you choose offers a salary large enough to repay your loans. A good rule of thumb is your payments should not exceed 10 percent of your net income when you graduate college. For example, if your net income is $30,000 per year, your payments should be less than $3,000 per year or $250 per month. Calculate your expected salary and how much you will need to repay.
Sometimes the higher paying jobs require more years in school which means you may have to borrow more. Consider if it is best to work for a period to repay a portion of the student loans you have before furthering your education.
Some employers have tuition reimbursement programs that help you pay for college. You could end up having less total debt if that is your situation.
Salary-to-debt calculator tells you how much student loan debt you can afford based on a certain salary.
Debt-to-salary calculator tells you how much salary you will need to support your student loan debt.
Cosigning student loans
Many private and state-sponsored student loans may require a cosigner who pledges to pay back the loan if the borrower does not.
Cosigning a loan is an action that should never be taken lightly, because it can have serious implications to credit history. The loan appears on the cosigner’s credit report and can directly affect his or her credit as a debt owed.
Ideally, the borrower of a cosigned loan is reliable, never late and never misses a payment. The cosigner’s willingness to risk his or her credit helps the borrower get the loan and can help the borrower build a positive credit history. If the borrower does not make payments, the cosigner is responsible for repaying the debt. The unpaid debt will appear on both the borrower’s and cosigner’s credit reports, and if payments are late, could harm their credit and perhaps their abilities to qualify for new credit. If left unpaid, it could also lead to collection accounts and harm creditworthiness.