Second-semester loans? What to know to borrow smart

For many students (and their parents), attending college — whether that means online or on campus — likely involves taking out an education loan to help cover the tuition bill and other expenses. Nearly 7 out of 10 Vermont families need to borrow to help pay education costs, so if you’re among that group, you’re not alone.

With the bills coming due soon and decisions on loans to pay for the second semester, parents and students need to decide how much to borrow, what type of loan to get, and what lender to use. It’s a lot to consider, and with everything else that parents and students are wrestling with it can be overwhelming.

We want to make it easier for you. Our goal is to help students and parents better understand their choices so they borrow only what they need and reduce their cost of borrowing.

To help you make the best financial decisions for your family, VSAC held a webinar earlier this year on how to choose education loans, featuring a panel of Vermont financial aid experts: Marilyn Cargill, vice president of VSAC’s financial aid services, research and marketing; Greg Davis, director of financial aid at Champlain College and past president of the Vermont Association of Financial Aid Administrators; and Deborah Lessor, VSAC manager of private loan origination (and the parent of five students who’ve attended and successfully paid for college!).

The hour-long interactive presentation explains:

• the differences between federal loans, private loans & loans made by schools
• how interest rates & repayment options affect how much you payback
• ways to maximize your financial aid (including free “gift aid”) to reduce the amount you’ll need to borrow

See the webinar recording here and a full list of our virtual offerings.

Here are some loan tips to get you started:

• Apply for “free” money first. Before you even consider a loan, access all the “gift” money that you’re eligible for by filling out the FAFSA (the Free Application for Federal Student Aid) and the Vermont grant application. This is the first step to opening up all the free aid (money that doesn’t need to be paid back) available to you. Learn more at vsac.org/fafsafirst and vsac.org/grants.
• Not all loans are created equal. Learn about the differences between federal student loans, federal parent, and federal graduate student loans, and the many variations of nonfederal (also called “private” or “alternative”) loans from your school, state agencies such as VSAC, and commercial lenders. Compare all your options carefully.
• Start with federal student loans. Borrow federal Direct student loans first, because they offer income-based repayment and other repayment options and benefits.
• Compare all other loans, including federal Direct parent loans (known as “PLUS” loans), for the lowest rates and best repayment terms. Understand the total amount you’ll need to pay back. 
• Borrow only what you need. It’s tempting to borrow the full amount of loans you may be given in a financial aid offer, but keep in mind that all loans are borrowed money that must be paid back with interest. This means that the amount you repay will always be more than the amount you borrow. Your goal should be to minimize loans as much as possible.

Remember, all loans are borrowed money that needs to be repaid with interest. It’s important to compare all your loan options and understand the costs and terms. You get to decide whether to accept some or all (or none) of the loan amounts offered in the student’s financial aid offer. Think carefully about how much you really need before you borrow.

Consider interest rates, fees, and repayment. Fixed interest rates stay the same over the life of the loan. Variable interest rates change with the financial markets (the rate can go up!). Variable rates may seem great at first but can end up costing a lot more over the life of a loan. Beware of “teaser” interest rates for which few people qualify. Never sign/approve a loan without knowing what you might ultimately pay and determining all possible interest rates, costs, and fees and the impact they’ll have on what you must repay. Also consider when you’ll need to start repaying the loan, what the monthly payments will be, and any options for reduced or suspended payments.

And, yes, VSAC offers education loans, too. Vermont students and families have access to VSAC’s student and parent loans for undergraduate and graduate education. Out-of-state students studying at a Vermont school can also apply for VSAC loans.

For the 2021–2022 academic year, VSAC offers loans with fixed rates from 3.79%–6.72% APR. VSAC education loans can be used by Vermont residents going to programs anywhere in the U.S. or internationally OR for any students attending a Vermont school. If you’ve already maximized available federal Direct student loans, a VSAC loan may be your lowest-cost option.

Have questions or need more information? Call us at (800)-226-1029, 8 a.m. to 4:30 p.m., Monday through Friday, and reach us via email at info@vsac.org. We're here to help with your career and education needs. Reach out to us!

For information on college and career planning and help with financial aid, go to www.vsac.org/FAFSAfirst and check out our online workshops and events. For an update on how we can help with the impact of Covid-19, click here. You can also give us a call at 800-642-3177, 8 a.m. to 4:30 p.m., Monday through Friday and online at info@vsac.org.