Comparing loan applications feels like tedious work until you realize that taking a few minutes to compare your options will save you thousands of dollars. It’s amazing how most people will agonize for hours over buying clothes or electronics, but when it comes to loan shopping there is no effort. Learning about what’s available is simple and you will not need a finance degree to figure it out.

It’s easy to use a loan calculator online to quickly compare loan applications. Determining what your monthly payment would be is a good start. But when dealing with a private loan you will be faced with variable interest rates that can change year to year. This is why you need to zero in on debt elimination as part of your plan.

The three most important areas of consideration when comparing loans are:

The interest rate

The repayment term (10 years, 15 years etc)

The total cost of repayment

Rule of thumb is that the lower the rate, the less the loan costs. However this depends on how long it takes you to repay the loan. A lower rate loan that takes more years to repay could end up costing a lot. This is when a loan calculator comes in handy. The following will help illustrate some scenarios you can encounter. I used a loan calculator on Mapping Your Future for $10,000 loans with ten and fifteen year repayment schedules and 8% or 5% interest respectively.

Think of the big picture; what will this loan cost to repay in full?

As you can see, the loans with a 15 year repayment schedule had lower monthly payments but ended up costing the most to repay. A low monthly payment might be helpful to fit in your current budget but you unknowingly keep yourself in debt for too long and waste thousands of dollars on interest. Many borrowers are more concerned about the monthly payment than anything else, as they want to control their budget to have extra money available for other spending, but using this logic may lead to making only minimum payments each month and can increase the total cost of repayment. When comparing loan options, you need to know what the total cost of a loan will be after you finally pay it off. The loan that costs you the least amount to repay is probably the best one for you.

If you want to accelerate your debt freedom, look for a loan that does not have a pre-payment penalty. A prepayment is when you pay more than the standard monthly amount due towards the balance getting yourself out of debt faster.

Ken’s Tip – If you are taking out loans to go to college you need the right tools to make the right decision. Fortunately, loan calculators are readily available on the internet. Smart debt management starts with choosing the right loan. Trying to keep a low monthly payment will end up costing way more to repay. Focus on the total cost of repaying the loan and choose the one that costs you the least.

Were your mid-term grades lower than expected? Have you been unable to keep up with class thus far in the semester?

Why?

Well if you are having a hard time in college classes right now, it may be because you are not studying very much. You may need to increase your focus on your school work.

This is where things can get tricky. There are a lot of distractions in college life. There is always another party, another event, another video game or any number of things to do other than what appears to be very dull and boring curriculum. Doing nothing or just sleeping is more appealing than some subjects.

However, it is during November that many students are confronted with a dilemma. The prior months of September and October were spent mostly having fun, but during November projects are due and very often there are exams looming just before or just after Thanksgiving break. Students may find themselves unprepared to successfully handle the work now due.

Worst of all, there is a major issue with attitude. After getting used to two months of comfortable living, suddenly trying to study for an exam feels like a huge amount of work, even if in reality it requires minimal effort. Often times the perception of the challenge of school work is much more severe than the actual work required. It’s easy for a student to simply give up, and say “Hey this is too much for me” or “I will never be able to get this done” or “It’s not worth it, I will just go party more as usual.” These excuses are quickly produced, exams and papers are completed in a shoddy state, and another learning opportunity is extinguished. Don’t let this happen to you.

If studying or preparing a report feels overwhelming, and you are about to quit on trying any harder, try reading this excerpt from the book “Success Is Not an Accident: Change Your Choices; Change Your Life” by Tommy Newberry, and get back out there and give it the real college try!

A recent survey from Sallie Mae and Gallup asked American families how they would cover college expenses. 24% of parents responded they would dip into retirement savings to help with their child’s tuition costs. This is an alarmingly high number and also a sign that families are keeping education a high priority. Of course families that do this have all the best intentions in mind, however their efforts are poorly managed. Here’s why.

1. In general taking early withdrawals from retirement accounts are liable for a 10% tax penalty in addition to any normal taxes due: It is financially prudent to allow retirement savings to grow on their own and preserve their tax deferred status. Pulling money out early does more harm than good.

2. You CAN borrow for college but you CAN’T borrow for retirement: When parents reach retirement age, time has run out to save more money. Once savings are used for other expenses they are gone forever and all the tax incentives for saving all these years go with it.

3. How many semesters can you cover with retirement savings?: Savings will run out faster than you think. If savings can only pay for a few semesters, how will the tuition get paid in the later semesters?

From a College Planning perspective, parents should not rely on retirement savings to pay for tuition. The right source for college savings would be in a 529 plan, with tax incentives for saving money for college.

However it takes several years of saving to build up any substantial 529 account. If a family has been unable to save money in a 529 plan, then they should look into student loan options to cover the rest of the bill.

One option is the Parent Plus loan offered by the Direct Loans Program. The Parent Plus loan offers a fixed rate and is a popular option with many families. The loan is only in the parents name and begins full repayment immediately while the student is in school.

A private student loan is another alternative. Using a private loan enables the student to pay for college now and handle repayment over time. Rather than depending on the parents to use retirement money, the student takes an active role in handling their own tuition. Parents can cosign with their children to help get them credit approved while in school. Many private lenders allow for the cosigner to be released from the loan if the primary borrower makes a certain number of payments on time.

Money Perspective: People take a different approach to making financial decisions based on who is actually paying the bill. When someone else pays for something on your behalf, the intrinsic value of that good or service is easily ignored. However when you personally pay for something you know first hand what value is exchanged. It is no different with college students. It is wonderful when someone else can pay for tuition, but when one pays for tuition using their own resources they tend to take that education much more seriously. Quite simply, you appreciate things/goods/services when you invest your own resources in them, and less so when someone else does the paying.

Students need to hold themselves accountable for their educational experience. Because students know first hand what goes on at school, they can truly weigh the value of their education versus the debt they incur. They can learn how to decide for themselves what is worth while. This means carefully evaluating colleges and majors, choosing what fits best. The point of going to college is to build a career and life for the future. If a student is able to do this as a result of a college education, then incurring and managing debts is a reasonable expense. It is vital that the student take ownership over their own education and determine what debts are appropriate and what debts are far too high to incur.

Parents should take heed. Save your retirement savings for retirement. Parents can best help their children during the college and major selection process by encouraging an objective comparison. Part of this comparison should include a calculation of debts. Then the student will know and value what opportunities they truly have for college.