Being Smart with Student Loans

Today, student loans have become an inevitable part of attaining higher education.  However, not being financially savvy when taking this money can come back to haunt you long after you’ve received that coveted college diploma.

According to Forbes, in 2017, student loan debt has swelled into a $1.3 trillion crisis. Forty-four million borrowers are shouldering this financial burden, with the average 2016 graduate owing approximately $37,172.

As many families are preparing for college, excitedly completing applications, they should also be accessing the total cost…especially if they plan to borrow.

One of the most important factors of one’s higher education is becoming debt-smart. Knowing how much the money you borrow today will cost you in the future, not just in terms of the monthly payments, but also in total interest, and how this could affect your standard of living, is crucial to living the life you want.

A recent report by the Global Financial Literacy Excellence Center cited that student loans have the highest delinquency rates of all consumer debt products today. Most of these delinquencies are due to the fact that the graduate hasn’t been able to secure a job that pays enough to cover their basic living expenses and student loan payment.

Borrowing to pay for college isn’t a bad thing. The cost of going to college is an investment in yourself and your future, which can yield big rewards after graduation. However, the key to obtaining that pot of gold at the end of the rainbow, so to speak, is making financially smart decisions today.

Look at the ROI of Your Education

Being debt-smart is about early intervention, examining all the facts prior to filling out the first college application.

One of the first and most important pieces of information to gather is the return on your investment in your education.  You should assess the cost of attending a certain school having a clear picture of what your post-graduation salary could be.

Use common sense. If you’re going to spend $100,000 on a four-year degree that will only earn you $30,000 a year after graduation, it doesn’t make good financial sense.

Target Schools that Offer Grants Over Loans

Many colleges offer all-grant programs, adhering to a loan-free policy. If you meet certain income and asset requirements, you can qualify for these programs and, consequently, won’t be saddled with student loan debt later. There are many websites that offer a list of these colleges and their requirements.

Look at Every Option to Lower the Cost 

Apply for FAFSA, student financial aid, look for scholarships, and, most importantly, talk with a financial aid counselor. Many families underestimate the value of the financial aid office.  They are a wealth of information and have many resources to help make college more affordable. All you have to do is ask.

Get a Part-time Job 

Don’t be afraid to work while going to school. For most students today, having a job isn’t a “nice-to-have,” it’s a must. In addition to generating income to offset the cost of college, a job also provides students with many of the skills employers are looking for when they interview recent graduates. 

If You Need to Borrow, Look at All the Options 

Favor federal loans over private loans. Thoroughly review loan packages, selecting the one that offers the lowest overall (term and interest rate) cost. Make sure you understand the different types of student loans (i.e. fixed and variable rate) and how they are to be repaid.

In addition, know all of the income-based repayment options. With many federal loan programs, you have the ability to lower your repayments if your post-graduate income isn’t adequate.

You should also know how to take advantage of the flexibility of the loan program. With some loan programs, for example, if you enter a public service profession, you can have your remaining loan balance forgiven after a certain amount of time. You should also know if you could consolidate loans to lower your overall interest payments.

Do the Math

There are countless free, college loan repayment calculators out there. So, before you sign on the dotted line, do the math. Determine your monthly repayments and your living expenses where you plan to live. This will give you the big financial picture, keeping you from getting in over your head as well as warding off the possibility of damaging your credit down the road.

In summary, preparation and knowledge is key to financial success. Students who are debt-smart now will be enjoying their wise decisions later.

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