It may surprise you to learn that student loans are only behind mortgages as the prime sources of consumer debt. Much like mortgages, mistakes can have pretty significant consequences in the future.
As we head towards what will be a major factor in our future success, we sometimes ignore how important it is to plan ahead for when we graduate. With so much work to be done prior to heading for campus for the first time, it can be easy to ignore any additional stresses. The good to thing to know is that there are numerous resources available to help you make your decision. For example, you can check out these finance blogs which cover personal finances and help you manage your money. Failing to prepare is preparing to fail, after all.
When it comes to student loans in particular, there are many areas which you should be aware of prior to making any decision.
Don’t make these following mistakes:
Not Borrowing Sensibly
There is a distinct difference between what you need and the amount you could get. For many students starting college, there is a tendency to get carried away with large sums. However, it is important to remember that for every dollar you borrow, it will cost you near enough two dollars to pay back.
Instead of borrowing to the absolute limit, number-crunch on the cost of college bills and pick up some part-time work or find out about tuition instalment plans as a sensible alternative to excessive spending
Using Student Loans for Everyday Expenses
If your studies and adjustment period has tempted you to splash out on some new threads, treat yourself to a new laptop and feast on Japanese food and steak, take a step outside yourself and think. A Student loan is designed for tuition and course materials, so spend wisely.
Splashing out early and without consideration will soon see your trips to ATM gradually decline in frequency until your bank balance is no longer your friend. Be extra careful over the holidays!
Failing to shop around
It is your right to choose the type of loan you want. Use comparison sites or simply compare each interest rate and set of terms against one another before making a decision on the lender to go with.
Each lender will offer their own terms and rates depending on your status and situation, so choose wisely.
Dismissing Federal Loans in Comparison to Private Loans
Federal loans are generally cheaper than going private. Despite the pretty packaging and incentives private lenders will offer, the devil, they say, is in the detail. For example, Federal loans allow three-year deferments in contrast to the alternative of a total of one year, should you go with a private loan. Federal student loans also trump private loans with additional features such as income-assessed repayment/loan forgiveness.
Taking the lowest rate available
Many times when you opt for the lowest monthly repayment, you will find that the repayment term will be longer. There is also a greater chance that the interest rate will be higher. If you would rather plan for a better deal, consider other options.
You may find that you can also use the services of lenders who offer a reduction on your interest rate if you sign up for auto-debit with your bank. As many lenders charge for missed payments and for manual payments, you can potentially save the money you forfeit for a shorter term in this way. If you opt for the student loan interest deduction when completing your federal income tax return, you can also claw some money back.
Think wisely. It’s your future.
