A student loan isn’t always a bad option. Just because it ends with the word ‘loan’, people immediately think that it is a ruse or a set up created by banks and private lending companies to get people (mostly students) in debt early before they even have a career. However, those fears are slowly being cleared up as more and more students (and parents) are learning more about student loans. With that said, a lot of people are using student loans of some sort, but they are still making mistakes with regards to the process in getting one and with the payment as well. They took out a student loan to help defray their expenses but end up paying more in the long run. Here is a list of frequent student loan mistakes and how you could avoid them.
Different Sources of Student Loans
When people say ‘loan’, they immediately think about a private organization or bank that funds the loan. After all, that is where most of the loans come from, right? Well when it comes to student loans, the government actually helps here a bit. They also offer some sort of federal loans customized for students. It includes flexible payment options after graduation, payment brackets depending on your income and some other bonuses which rely on the type of work you find after you graduate. For example, if your income falls in the lower bracket, then some federal loans only require you to make the payment for 25 years then waive the remaining fees off. If you work for the government, then that number drops down to 10 years.
Although a federal loan might take a while to find, it has obvious advantages over loans from banks or other financial institutions. As you can also see from the examples, it might not seem obvious while you are still enjoying the loan in your student years. But after college federal loans really outshine other options.
Since a lot of students are not well-versed with financial jargon or anything related to interest rates, they usually avoid getting involved in the loan application process. A lot of times, these are the students that are already in their senior years but don’t have any idea about their current loan or what happens after they graduate.
What you can do instead is to go with your parents when they fill out the forms and take care of the process for you. After all, what happens after college or university will entirely be your business, so you also need to know what you are getting yourself into. While you are still applying for that loan, it is actually a very good time to learn about the technicalities that affect your loan and the payment options that carries with it. Speaking of terms and technicalities, it is always recommended that you read the fine print on your contract. A lot of students who graduate suddenly realize that there are additional fees on the top of their loan and that their payment options are extremely limited. It doesn’t take a financially sound person to realize if the fees listed there are outrageous or not.
Make Interest Payments Early
A lot of times, college students are able to find a part-time job that pays well and covers their living expenses with a little on the side. If you find yourself in such position, don’t squander your money on unnecessary overseas trip or fancy gadgets, but focus on paying off your loan’s interest payments early.
You have to keep in mind that a student loan has interest rates that apply to the payment. Sometimes when you can’t keep up with your payments, the interest may capitalize, or be added to your total balance. That is definitely what you don’t want to happen to your student loan. Simply paying off a small portion of your student loan while you are in college can definitely help you in the long run.
Don’t Borrow Too Much
Before you apply for your dream college, you already have an idea about the total price for your intended course. What most students do is they take out a loan which is way more than that amount. They include certain expenses like transportation, gadgets and cost of living with it. Keep in mind that even though you might enjoy that extra cash while you are a student, you will be paying for that after school. Reality also shows that when you graduate, finding a stable job can be very difficult and may be next to impossible in many cases. This means that paying off your loan might not be that easy; so you should only borrow what you need and make things easier for yourself after you graduate.
Consider School Options Carefully
Just because all of your friends are going to that posh university, doesn’t mean that you have to. Recently, in-state schools have been growing in terms of their quality and reputation. They may not have the same name-power as those Ivy League schools, but it can definitely carry its own weight on your resume. If we do the math, you could see that going to an expensive school is still a bad investment in the long run. After you graduate from a reputable school, you would expect to receive $10,000 a year but you end up paying $800 or $9,600 a month for your loan. It is still disadvantageous and expensive.
If you are really hell-bent on graduating with a degree from your dream school but have a high risk of going into debt then you should consider doing the first two years at an in-state school or community college. There are some universities that accept credit from state colleges, so transferring won’t be a problem for you. Even if you did go to that expensive college immediately, you still need to get general education credits for that first two years anyway. If you choose to study in a community college then you could even save a bit of money on the side for those first two years and you could also build yourself a solid GPA, so that you’ll make yourself eligible for scholarships when you transfer.
A student loan is without a doubt your first experience when it comes to applying for, managing and paying off a loan. It can be a rewarding experience or a financially debilitating one if you don’t treat it with care. Although many people also argue that getting yourself in debt while you are still studying isn’t a very bright idea, you also have to consider the fact that after you graduate with a degree your earning potential will increase dramatically. With the rising costs in education, taking out a student loan might make things easy for yourself and for your parents in terms of expenses. As long as you avoid making those frequent student loan mistakes, it will be very beneficial for you.