Inflation, inflation, inflation. You’re likely well-past tired of hearing this term and even more exhausted of seeing its effects on your wallet. Successfully navigating such an unprecedented financial time requires deft maneuvering. Often, this means being proactive. This is particularly true when applying for your student loans this year.
In May, the Federal Reserve raised interest rates by 0.5%, the biggest increase in 20 years. It was the second rate hike of the year, followed by March’s 0.25% jump. The Fed has signaled that similar increases could occur in the coming months if inflation continues to rise.
Colleges and universities typically send their tuition bills to families in June and July. Most students who need to take out a loan, will apply in July or August, depending on the due date. Those two months could prove crucial in saving (or costing) you significant money over the long term.
“We are in a rising interest rate environment and the impact of waiting two months to apply for a loan could mean the interest rate increases twice,” says Don Kerr, Director of Student Lending and College Services at AAA Northeast. “It is hard to quantify exactly how much the interest rates could increase during that time, but even half a percent increase on a $30,000 loan with a 10-year repayment could be a significant savings.”
If a family has a solid estimate of how much they need to borrow, applying early could reduce the overall cost of the loan. But how do you get an estimate before the bill arrives? For this, you’ll want to refer to the financial aid award letter. This document will contain an estimate of the total cost of the school (tuition, room and board, fees, books and miscellaneous expenses) and an estimate of the total amount of financial aid qualified for (grants, scholarships and financial aid loans). On the letter, the financial aid offered will be subtracted from the total cost so the family can see an estimate of how much they are responsible for paying.
Another important note to remember is that applying for a student loan early does not increase the length of the loan or, more importantly, the time it spends accruing interest. Although you’ll apply before you head to campus, lenders don’t send the money until the school needs it.
AAA is here for all your student lending needs. Learn more or schedule an advising appointment at AAA.com/FinancialAid.