Experts advise families to shop wisely for student loans and create budgets

The Pennsylvania Higher Education Assistance Agency (PHEAA) convened on March 12, 2025, to address the pressing issue of financial aid gaps in higher education. The meeting focused on strategies for families navigating the complexities of student loans and financial planning for college.

The discussion began with an overview of the costs associated with borrowing for education, particularly highlighting the origination fees tied to federal PLUS loans. Participants noted that these fees can significantly impact the total amount borrowed, emphasizing the importance of exploring alternative private loans that may offer lower fees. The consensus was clear: families should shop around for the best loan options, considering both fixed and variable rates.

A critical point raised was the misconception surrounding the credit check process for PLUS loans. It was noted that the credit check does not adequately assess a borrower's ability to repay, leading many families to overestimate their financial capacity. Experts advised parents to adhere to a rule of thumb: students should not borrow more than their expected starting salary, and parents should limit borrowing to their current income levels.

The meeting also underscored the necessity of creating a personal budget to manage educational expenses effectively. Participants discussed the importance of distinguishing between direct costs, such as tuition and fees, and indirect costs, which include books and living expenses. They encouraged families to consider these factors when determining how much to borrow.

Additionally, the conversation touched on the potential consequences of over-borrowing. Participants shared anecdotes of students who faced financial difficulties due to excessive debt, stressing the importance of making informed borrowing decisions. They highlighted resources like MySmartBorrowing.org, which can assist families in understanding their financial options and avoiding over-borrowing.

As the meeting progressed, attendees discussed strategies for families who may not be able to borrow as much initially. Suggestions included commuting to school, attending community colleges for prerequisite courses, or considering lower-cost housing options. The risks associated with taking a gap year were also addressed, with experts cautioning that many students do not return to education after a break.

In conclusion, the PHEAA meeting provided valuable insights into the financial aid landscape, emphasizing the need for careful planning and informed decision-making. As families prepare for the costs of higher education, the discussions highlighted the importance of budgeting, exploring various loan options, and understanding the long-term implications of borrowing. The agency plans to continue its efforts in providing resources and support to help families navigate these challenges effectively.