Graduation is not far away, and it’s past time to begin thinking about how you are going to pay for college in the fall. Which, might mean one thing – student loans.
If you waited until now to start thinking about saving for college, or if you haven’t saved as much as you thought you would, you may have to take out student loans to help pay for it. Even though taking out loans generally offers a pretty good return on your investment, because you can can earn more with a bachelor’s degree than you would with only a high school diploma, you should still try to take out the smallest amount possible in student loans to get your degree.
When I was getting ready to attend college and was contemplating taking out student loans, there were a lot of things I didn’t know about taking out student loans. If that’s the case for you too, here are three things you should know before signing on the dotted line and taking on the debt.
Federal vs Private Student Loans
There are two main types of student loans, federal student loans and private student loans. Federal student loans are made by the government and come with a lot of benefits that may not be available via private student loans. For instance, federal student loans offer a fixed interest rate for the life of your loan, the option to delay repayment until six months after graduation, and the option to restructure your loan repayment plan based on your income or delay payment if you lose your job.
That said, private student loans taken out through a bank or credit union may offer a lower interest rate. Even though that may look attractive, federal student loans are usually the better option.
A Longer Repayment Term Isn’t Necessarily Better
When you first graduate from college and your student loan payments kick in, it can be tempting to stretch the repayment term out as far as possible to help lower your monthly payment. Sometimes this is necessary because your budget is tight, but if you can afford to pay more by giving up something else from your budget, like cable or eating out, you’ll save money in the long run. Paying larger monthly payments will shorten your repayment term and can help you save a significant amount of money on interest.
Reduce Your Need for Student Loans
Rather than depending on student loans to entirely finance your education, you’ll save a lot of money by finding ways to take out less in loans. One idea is to work during the summers between high school. It can be tempting to spend that money on movie nights, eating out and new clothes, but your future self will thank you if you save at least some of it to help pay for college.
Another option is to work during college. Most students can find a way to fit in a few hours of work each week during the semester, and you can once again take on a job with more hours during the summer. This money can help you pay for your living expenses so you don’t have to use student loan money to help pay for those things.
Overall, I’m not of the opinion that student loans are the worst thing out there. In fact, I took out student loans to help pay for some of my college education too. But it’s important to keep in mind that student loans are still debt that has to be repaid at some point.
Have you taken out student loans? Were you aware of all of these things before you took out student loans?
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