As ranks of students prepare to start college next month, families who applied for financial aid have received their awards. Many are now looking at huge tuition bills, knowing in all likelihood they will need to borrow thousands of dollars to meet the number that college financial aid offices typically label "expected family contribution."
But students and parents don't always understand the loans that are offered to them, or the obligations they face after signing their names on the documents.
"If you find yourself needing to borrow from a parent loan program or a private loan program, it may be a sign that you are over-borrowing," said Mark Kantrowitz, a Cranberry resident and publisher of FinAid.org and Fastweb.com, leading websites on planning and paying for college.
The federal "Parent Plus" loans allow parents and legal guardians to borrow money at below-market interest rates to help their children pay for tuition, housing and school supplies, for example, but families should have a frank conversation about what they can and cannot afford when it comes to college costs, he said.
Two online student loan calculators that are currently available at no cost can help offer a better understanding of what the loan payments will look like at graduation.
The "How Much to Borrow" loan calculator at www.FinAid.org helps families explore the loan costs when parent and student loans are combined to meet the education bill. Parents and students can see how much the monthly bill will come to if they split the costs 50-50, or any other ratio that works for them.
Mr. Kantrowitz said this time of year is typically when he sees a spike in the number of people using the calculator.
Another student aid resource, SimpleTuition, offers a tool that lets families play around with numbers to get an idea of what the parents' and student's expected monthly payments will amount to.
The tool is called CollegeCostAdjuster and can be found at http://adjuster.simpletuition.com/start_here.
The SimpleTuition calculator is mainly focused on calculating payments on private student loans, while the FinAid calculator is agnostic as to the type of loan -- federal or private -- and concentrates more on what the loan payments will be based on how much of the debt is student loans or parent loans.
"People are borrowing from so many sources and for so many years they don't realize when they're in too deep," said Kevin Walker, CEO of SimpleTuition in Boston. "We want to reveal the cost of borrowing up front while they are still in school and hopefully not too deep debt."
Combined student loan debt recently hit a whopping $1 trillion, surpassing credit card debt to become the second-biggest category of debt in this country, behind mortgages.
Colleges are not required to provide financial advice to students, but they are now required to provide a net price calculator on the school's website to give families an indication of the real bottom line cost of attending the institution after federal grant awards.
While college education debt is considered good debt, it can wind up being bad debt if the payments are so high the borrower cannot afford other important living expenses.
Mr. Kantrowitz said the rule of thumb he uses is that a college student's total student loan debt at graduation should be less than his or her expected annual salary.
Meanwhile, Congress is rewriting the rules on education borrowing.
Lawmakers recently voted to prevent a spike in interest rates on federal student loans that were set to double to 6.8 percent. But other changes will still saddle students with higher borrowing costs.
As of this week, students aspiring to earn graduate degrees are responsible for paying interest on their federal loans while they are still in school and immediately after they graduate. Previously, the government paid loan interest while graduate students were enrolled.
In addition, the government will no longer cover the interest on undergraduate loans during the first six months after graduation.
Tim Grant: email@example.com or 412-263-1591