Deciding on a Student Loan? Three Tips to Reduce Loan Borrowing and College Costs

For many students, attending college this fall likely involves taking out an education loan to help cover tuition bills, along with room, board, books, supplies and transportation costs. Seven out of ten Vermont families need to borrow from a loan lender to help pay education costs. So, if your family is considering borrowing for college expenses, you’re not alone. And these three tips to reduce loan borrowing and college costs will bring you a few steps closer to paying your tuition bill and reducing your overall college costs. 

With bills for the fall 2023 semester due soon, parents and students have three important decisions to make: 

• what type of loan to get
• which lender to use
• how much to borrow 

VSAC understands each family has unique situations making these choices challenging. But for over 50 years we’ve assisted Vermont families in applying for as much free aid as possible while guiding them in reducing their borrowing costs. Ultimately, we want to help families understand their options so that students get the best education for the lowest cost possible, and families borrow only what they need.  

Follow these tips to get started. 

1. Apply for and accept “free” money first to reduce college costs 

Before you even consider a loan, access all your eligible “gift” money by filling out the FAFSA (Free Application for Federal Student Aid). After you complete the FAFSA, submit the Vermont grant application. Both applications give you access to the free aid that does not need to be paid back. 

After you receive your financial aid offer, check your tuition bill to be sure any grants and scholarships are listed as “credits.” If a grant or scholarship you received isn’t listed, call your school’s financial aid office to cross-verify the eligibility and receipt of the funds. Also, ask your financial aid office if there are any additional steps to have free aid applied to your tuition bill. If your financial situation changes, you may be able to appeal for more aid. 

2. Learn about education loans so you can borrow wisely.  

If you need a loan to cover education costs, keep in mind: Loans aren’t created equal. 

There are a lot of differences between federal student loans, federal parent and 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. 

Federal Direct loans are for students enrolled in college or a training program at least half-time. There are two types: 

For students:

• Subsidized (based on financial need) 
• Unsubsidized (not based on financial need) 

Parents:

• Federal Direct PLUS parent loans are for up to the full remaining cost of attendance. PLUS loans are available through your school.

Learn more about education loans.

3. Reduce education costs by only borrowing what you need. 

It’s tempting to borrow the full amount of loans in your 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 loan costs as much as possible. Remember: You get to decide whether to accept some or all (or none) of the loan amounts offered in the student’s financial aid offer.  

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 how they impact 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. 

Are you a Vermont resident or planning to attend school in Vermont? Learn more about VSAC student and parent loans

Have questions or need more information? Call one of our specialists at 800-226-1029, 8 a.m. to 4:30 p.m., Monday through Friday, and reach us via email at info@vsac.org.  

Suggested Readings 

• After reviewing your tuition bill, start your semester stress-free with four simple steps.
• Before you borrow from any lender, read our Education Loan guide.