Loan holders will contact students before graduation and ask them to select a repayment plan, she says. These plans generally last 10 years.
Advisor Assistance

Michael Beloff, a financial advisor with Shelton, Conn.-based Barnum Financial Group, raises the topic of student loans when conducting annual reviews with clients whose children are nearing college graduation.

He encourages them to divide the loans they hold into different buckets, such as subsidized Stafford loans (which are need-based), unsubsidized Stafford loans (available to any student), private loans and Plus loans. A student’s loan program may contain multiple loans, each with a different lender and start date.

Borrowers should understand the features of each loan before consolidating them, he says. A good place for students to start exploring the loan consolidation process, he says, is their school’s financial aid office. To consolidate loans into a Direct Consolidation Loan, students can go to StudentLoans.gov. They should watch out for scams. “With consolidation, it’s buyer beware,” Beloff says.

Subsidized student loans don’t start to accrue interest until graduation. To keep principal in check on unsubsidized Stafford loans, Plus loans and private loans, Beloff says families with free cash flow may opt to pay interest while a child is in school.

Parents may take penalty-free distributions on IRAs to fund college costs while children are enrolled in post-secondary institutions eligible to participate in federal student financial aid programs. But Beloff says he is often leery of this. “It’s easier for parents who are retired to help kids with loans,” he says, “than for kids to help parents with retirement.”

“Saving for retirement and keeping kids afloat is a balancing act for every family to do on its own,” he says—and advisors can help. Since loans are paid over time, families can adjust the portion they will pay as their children become more financially secure, he says. A lot also depends on whether a family has other children to put through college. “When the kids start to graduate, the game changes a little bit,” he says.

The Expected Family Contribution (EFC) calculated through the Free Application for Federal Student Aid (FAFSA) is divided by the number of kids a family has in college. So a family expected to contribute $50,000 for two college students may be expected to contribute roughly that same amount for the second child alone after the first child graduates.