7 Student Loan Mistakes and How to Avoid Them
A good education makes economic sense. College graduates on average make more money than people with only a high school diploma. They also experience lower levels of unemployment. These are great reasons to go to college but it can be difficult to pay for college with personal finances. Many students turn to loans in order to make ends meet and run the risk of making huge financial mistakes.
Jayson Matlock, a financial aid counselor at Southern Utah University, advised, “It is important to make sure that you are cautious when assuming any type of debt, and to always read or discuss the terms of that debt beforehand. On the other hand, you should not be afraid of debt as it can help you to overcome many obstacles in your life. You just have to make sure that you are financially capable of relieving yourself of that debt while still maintaining a comfortable lifestyle.”
SUU, a fellow College of Distinction, has compiled a list of some big mistakes to avoid when paying for college.
1. Overlooking Free Money
Taking out a loan comes at a price. Not only must the money be repaid, it also includes interest which adds to the overall cost. Grants and scholarships are forms of financial aid that do not need to be repaid, making them great ways to help pay for college. Military benefits can help active duty and honorably discharged members of the armed forces. Businesses may also offer tuition assistance or reimbursement to employees.
2. Frivolous Spending
While many students spend their loans responsibly, there is always a temptation to use the money on nonessential items. Avoid using loan money to take trips and vacations or occasional shopping sprees. These types of rash choices can cost you a lot of extra money and can be easily avoided with a little self-restraint.
3. Borrowing More Money Than Needed
Loans can help bridge the gap between the money you have and the cost of your education, but you should not take on more debt than what is necessary. Try looking for a part-time job to pay for your day-to-day expenses. The idea behind this is simple; the less money you borrow now, the less money and interest you have to pay back later. It’s also important to look ahead and know what the average salary is in your field of choice to help determine how much you’ll be able to reasonably afford on monthly loan payments.
4. Not Understanding Your Repayment Options
Benjamin Franklin once said, “Don’t put off until tomorrow what you can do today.” This is also true for student loan payments. Understanding the details of repayment can save you time and money. Ask your loan servicer about repayment options to find which plan is best for you. There are many options available depending on your circumstances, including income-based repayment plans. It’s important to stay in contact with your loan servicer to avoid going into default, which can damage your credit.
5. Confusing Variable Interest Rates For Fixed Rates
While all loans require interest, not all loans have the same type of interest. Interest rates are classified as either fixed or variable. A fixed rate remains the same throughout the life of the loan. A variable rate can change throughout the life of the loan. While variable rates may start off lower than a fixed rate, they can change and become much higher forcing you to pay much more. Be sure to ask your loan servicer about how the interest capitalizes over time.
6. Borrowing From Private Lenders First
When borrowing money to pay for school, always choose federal student loans first. These loans have better repayment terms, greater availability, and are less expensive than private loans. These loans also have fixed interest rates and don’t depend on your credit history. You should only consider private loans if you are no longer eligible for federal loans or if you have reached the limit on the federal loans.
7. Not Talking To A Financial Aid Counselor
Financial aid counselors are a great resource who can help you make the right decisions when you look at paying for school. They have years of experience and can answer questions you may have, help you apply for scholarships and grants, or help you choose the best loan available to you. Once you enroll in your college of choice, be sure to find out the services they offer in terms of financial aid. If you make an appointment with an aid advisor, you just might find incredible resources that will make paying for college much less of an obstacle!
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