College loans 101: What to know to borrow smart

Written by
Emily Stetson

July 21, 2021


student with backpack

(BPT) - Collegebound students have to complete their most important assignment before arriving on campus: paying the first semester’s tuition bill. Before you do anything else, make sure you've applied for all available aid. If you haven’t already, fill out the Free Application for Federal Student Aid (FAFSA) at

For many students and their parents, paying for school can seem overwhelming — especially if you need a loan to cover gaps between your financial aid and what’s due.

The best advice? Borrow as little as possible.

"When considering loan options, reduce the amount you need to borrow," said Scott Giles, CEO of the Vermont Student Assistance Corporation (VSAC). “Educate yourself about all the ins and outs of loans, so you can make an informed comparison.”

Here’s how to feel confident you’re taking the right steps — and not missing opportunities to save.

1. Stay on top of bills

The deadline for paying for fall semester may be as early as Aug. 1, and the spring semester deadline could come as soon as December. Colleges typically email students — not parents — when payments are due, with a link to an online portal to view the statement and pay online. Late fees can be costly, so make a plan to be sure bills get paid on time.

2. Decode your bill

laptops and students

College bills typically show charges for the semester, plus credits reducing the amount you owe.

  • Check your charges including tuition, room and board, plus fees. Transportation, books and personal items are not included, so budget for those separately.
  • Look for unnecessary fees. Health insurance may be charged if students don't verify coverage on their parents’ plan. Or a bill may include a more expensive meal plan than necessary.
  • Confirm financial aid “credits.” Your financial aid notification specified your grants and scholarships (“gift” aid that doesn’t have to be repaid). If a grant or scholarship you received isn't listed, contact the school’s financial aid office.
  • Check state resources. VSAC’s Giles notes many states have their own grant and scholarship programs.

3. Create a payment strategy

books and graduation cap

Before borrowing, assess your own resources. Savings — like funds in a 529 college savings plan — can reduce what you need to borrow. Consider what you can pay using income from work study, a part-time job or a parent’s income.

Ask your college about tuition payment plans, to pay a portion each month rather than everything up front.

4. If you still have a funding gap, be "loan smart"

students in a panel shot

This comprehensive loan guide walks you through the process to help you make decisions that minimize monthly payments and total repayment amounts. Compare rates and terms now to help you make a good choice that may be with you for 10-15 years.

Use federal student loans in the student's name first. Accept these loans (known as direct subsidized or unsubsidized student loans) if offered before you consider other types of loans as they have low rates and favorable repayment options.

Compare carefully. Student (and parent) loans are NOT created equal. Keep in mind:

  • Many banks advertise a range of rates (variable and fixed), but few borrowers qualify for the lowest rate. Make sure you know the rate you’re offered before finalizing a loan. If you don’t get the rate you expected, cancel your application and shop around.
  • Unlike federal loans for students, federal PLUS loans for parents (which may be listed on your financial aid notification) may offer higher rates than many other lenders. Compare all loan options before “checking the box” for PLUS on your financial aid offer.

5. Budget for the long term — and borrow only what you need

caps and gowns

Think a few percentage points won’t matter? Think again. The differences add up over time. Determine the amount you may need to borrow for each year, then use a student loan calculator to explore how different interest rates affect total costs and monthly payments.

Remember: All loans must be repaid, with interest. You can accept less than the amount offered, or decline other loans a school offers. It’s tempting to say “yes” to everything on your financial aid notification, but just because you can doesn’t mean you should.

Know more. Borrow less.

Higher education is a big commitment, but it will pay off. With careful planning, you’ll set yourself up for success, and chart a course of financial responsibility that will pay a lifetime of dividends.