Looking for advice and tips on student loans for college? Part of adulting means you have to looking into ways for paying for college, including student loans. Here are 7 things students should know before taking out student loans.
Are you a college student contemplating taking out student loans? Before you do, you need to read this. There are certain things that students should know before taking out student loans so that they can be better prepared for what they’re going to pay back and how much they’re going to owe.
While taking out student loans can be great, there are some aspects of it that you need to stay away from as well. This information will help you become aware of the good, the bad, and the ugly when it comes to student loans.
Things Students Should Know BEFORE Taking Out Student Loans
How does a student loan work?
Student loans aren’t complicated at first but they can get complicated over time. There are two main types of student loans. The first being one that is borrowed from the government and the second being one that is borrowed from private lenders.
Both have their positives and their negatives and both are used by millions of students around the world. Students will take out a set amount of money that they need to pay for their books, tuition, etc. and then use that loan to pay for the fees upfront. Then, once the student is done with college or no longer in college, the payment starts for the loan and is often accompanied by a hefty interest rate as well.
How much are student loans monthly?
This varies depending on the amount of student loan but it’s safe to say that the average student loan is hundreds of dollars per month. There are some people that have $100,000 or more in student loan debt and once they graduate, struggle to find a way to pay it each and every month.
Are student loans a bad idea?
For the most part, student loans can be a bad idea if they’re not handled properly. Many people have student loans but abuse the system and take out more money than they need. While this doesn’t seem like a big deal at the time, once they have to start paying back that loan amount with interest, it becomes clear very quickly that they’re in over their head.
Many students fail to see that once they start paying back their student loans, they’re almost paying for them twice – and in some cases, they might be. A good interest rate depends on credit and other factors and it’s hard for a student to have good credit typically at that age.
What happens if you never pay your student loans?
Don’t make this mistake! Student loan debt is actually one debt that will NEVER go away. You can’t go bankrupt and have it go away. With federal loans, there’s a slight change of loan forgiveness (but your credit score will be impacted negatively). With private loans, there’s nothing you can do to make it stop except pay it off and have a zero balance.
If you decide one day that you’re just not going to pay your student loans, you’re going to be dealing with a life of headaches from that point on. The collection agency will be calling you nonstop and your interest will be accruing each and every day.
Not paying your student loans is a fast way to guarantee that you’ll never get a loan for anything else that you need for a very long time in the future.
Now that you know a little bit about taking out student loans, here are a few things that students should know before taking them out.
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Student Loan Tips And Advice
1. Think about a way that you can fund yourself through college without taking out a loan
If at all possible, find a way to pay for your college while you’re actually in it. Take up a job or brainstorm on ways that you can earn money to pay for your classes. This means that you’ll have less stress when you graduate and you won’t be paying a ton in interest! Things like scholarships, grants, work-study programs. Perhaps you could look into a state or community college and then transfer to another university to save money. Do you have to live on campus? If not, you can live at home and try to save money that way.
2. There are two types of loans (and one is better than the other)
The two types of loans are federal and private. Apply for federal loans first by completing the FAFSA. Federal loans are preferable because students don’t need to have a credit history in order to qualify. Federal loans also have income-based repayment plans and may over loan forgiveness. Private loans are simply that, offered by a third party, typically with high interest rates and no loan forgiveness. Private loans should be an absolute last resort. Now that you know that, let’s move on to the next student loan tip.
3. Choose a career that is capable of paying a loan back reasonably
Here is some practical loan advice. Economy trouble aside, if your career that you’re going to college for isn’t going to pay you enough to pay back your loans as a reasonable rate, either you don’t take the loan or you change your career. For example, a six figure loan would need a six-figure job to pay it off. A low five-figure earning job doesn’t really justify taking out a six figure loan.
4. There are two types of FEDERAL loans
The two types of federal loans are subsidized and unsubsidized. With subsidized loans, you don’t have to pay interest while you’re in school. With unsubsidized loans, you do pay the interest.
5. Make certain that you understand the terms of your repayment
This is NOT a time to lose your focus and gloss over details. Ask the questions to figure out the answer. You owe it to yourself to know how and when your loans have to be paid back. When will you start having to pay it back? What will be the interest rate on it?
6. The school processes the loan
The loan amount will go to your school. They then apply it to your account. If there is any money left over, then the student may be able to use that money on other school expenses. However…
7. You cannot use student loan money on anything you want
Student loan money is not free money. You will have to pay it back. Spend responsibly. You shouldn’t buy new clothes or a new car with it. Think about using extra loan money for things that will enhance your education such as school supplies, study-abroad costs, transportation to and from school, etc.
If you find yourself considering student loans, make certain that you’re in complete understanding of how it’s going to change your future. If you can make it work in a way that is positive, student loans can be a great thing!
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