In the face of rising tuition costs, many students turn to federal student loans to help pay for their post-secondary education. After all, savings, bursaries, and even the bank of mom and dad can’t always cover the full expense of your undergraduate career. Between tuition, housing, school supplies, and groceries, the costs of living on campus add up. If you expect to pay for these expenses with the help of a student loan, you need to make sure you understand what this involves. Here’s a quick guide to help you become a responsible borrower when you get a loan.
Ask the tough questions
Your choice of school impacts how much money you end up having to borrow. Though the fall semester is already well underway, you need to ask yourself if you’re at the right institution — both financially and educationally.
Did you have to travel across the country to get to class? In-state public schools and community colleges cost significantly less than out-of-state schools and private institutions. Though the cost of tuition and incidental fees will differ from school to school, the College Board has crunched the numbers. They found the average four-year in-state school costs $20,770 per year, while a private four-year institution costs $46,950.
Do your research
If there’s a significant discrepancy between colleges, you need to draw up the pros and cons of staying at the most expensive one. Many students enroll in expensive universities because of the prestige of their departments or the unique degrees they offer. If you’re attending your chosen school for one of these reasons, you need to do your research to confirm this is the case. Does your college provide unrivalled education in your stream? Will this degree help you find a higher paying job to cover these added costs?
Look to the future
You’ll find it easier to answer these questions when you know what your degree will earn you. This figure can help you work out your loan’s impact on your future finances. The salary streams of different career paths vary drastically and can affect how long it will take you to repay your loan. Lenders advise students accept loans they can pay off in 10 years or less, though many take longer to repay their debts in the face of wage stagnation and underemployment. These lenders also warn your loan payment should only represent a small percentage of your income.
There are some resources that can help you find your potential starting salary. The Bureau of Labor Statistic’s Occupation Outlook Handbook and the Department of Labor’s Career Search give a broad overview of a variety of industries. You may also want to interview graduates of similar degrees using a community like 10,000 Coffees. This website facilitates conversations with experts in a wide variety of trades. You can explore user profiles to find someone who has the career you want and set up a coffee date to discuss their experience. For the cost of their coffee, you’ll gain unique insights into your potential industry.
Read the fine print
The terms and conditions of your loan affect your loan repayment. It determines how often you have to send payments, the size of these payments, and the interest rate applied to your outstanding balance. Though most federal and private student loans have deferment programs that give you a grace period before you have to begin paying them back, you are legally obligated to repay these loans even if you don’t graduate or fail to find a job.
Be punctual
Your loan is just like rent or your cell phone bill. It has scheduled payment dates that you shouldn’t miss. When you miss a few payments here or there, you’ll face late penalties. If late payments become a chronic issue, you can face significant drawbacks just as you would with any delinquent loan. You could have your wages garnished and tax refunds seized while facing a variety of other consequences.
You can prevent a slip into delinquency by budgeting your finances appropriately. If you aren’t sure how to manage your money, your loan servicer may offer resources to help you manage your debts. You should find savings advice and budgeting techniques that work with your financial situation once you graduate — even if it doesn’t come from your loan servicer. Most well-meaning lenders will support their borrowers in this way — even smaller lenders of short term loans.
That’s why companies like MoneyKey provide a resource center stocked with budgeting tips and savings guides for their customers. Since most people who visit MoneyKey.com live paycheck to paycheck, their advice is tailored to those with very little expendable cash — just like a new graduate. Their advice doesn’t rely on already existing savings and investments; they share basic, practical tips anyone can take on, regardless of their financial standing.
Check in with your lender
Regardless of where you find budgeting tips, you should maintain a relationship with your student loan servicer. They can help you explore repayment options should you struggle to meet your scheduled payments after graduation.
Life post-graduation may seem like a far-off dream, but it will arrive sooner than you realize. Before you know it, you’ll have walked across the stage with your diploma in hand. Then you’ll be expected to exchange your robes for a professional blazer as you start to earn your very first paycheck at an office. You’ll also be expected to repay your loan.
Along the way, remember that it’s important to save where you can. Even something as simple as drinking water presents the opportunity to save some cash. Instead of buying water, use a refillable water bottle, or even better, search for great prices on reusable water bottles and save on the bottle itself! That’s truly a win-win and a great example of an easy way to save a few bucks.
A loan of any kind is a big financial decision at any time of your life. Whether you get a line of credit, a payday loan, a mortgage, or a student loan, it can have lasting effects on your finances. When you invest in the time to become an informed and responsible borrower, your efforts now will pay off in your future.
