For many college students, student loans are an inevitability. Scholarships, grants, and work study opportunities can only go so far to cover the major cost of most institutions of higher education
. Often, college students take on the responsibility of federal or private student loans without fully realizing what they are signing up for.
Before signing on for student debt, here are four things students should think about:
1. Understand Your Budget
When you take out student loans, understand that you will need to pay them off
eventually, often with interest attached. So while it might feel like you are flush with cash after the loan hits your account, it is important to save student loan money for necessities in an attempt to spend less than what you have been loaned.
This money is earmarked for books, tuition, food, and transportation expenses. Spending student loan money on excess expenses like eating out and heading to the movies with friends can cause you to waste your financial resources. Plus, the more money from your loan you are able to save, the easier it will be for you to eventually pay off the loan entirely. Prioritizing how you spend your money now will help you be more prepared for your financial future.
2. Only Borrow What You Absolutely Need
The biggest mistake students make is borrowing more than what they actually need and can reasonably expect to be able to repay. Student loan providers are often more than willing to offer a student much more money than they actually need
in the hopes that they will spend it and not be able to repay it right away, thus earning the lender a ton of money in interest fees.
You can choose how much of a loan offer you want to accept. If you leave a portion of a loan unclaimed, that amount will be returned to the lender. If you do
opt to take the full loan and find that you do not need it all, you can return it to the lender as a payment.
The more money you accept as a student loan, the higher your monthly payment will be.
3. Your Career Choices Will Be Impacted
Once you graduate and those student loan payments begin, you must quickly find a job with a salary that allows you to make your monthly payments
. When bills are coming in monthly, the importance of your happiness at your job means a lot less than the money you are bringing in. This can prove limiting to students who discover they have entered a career path they do not like. Taking on additional student loans in order to change careers isn’t an option for everyone. The more money you borrow in student loans, the less wiggle room you'll have to pursue different job options when you graduate.
4. Your Loan Balance Can Increase Even With Regular Payments
Even if you make your monthly payments on time and in full, it is possible that your loan balance will still increase over time. This happens mostly with an income driven repayment plan. If your monthly payments are based on your salary instead of the actual debt owed, it is possible that the payments you make will not be enough to cover the interest
you accrue every month. THIS IS A HUGE PROBLEM.
If you anticipate entering the workforce in a low-paying field, you will need to take this into account when accepting student loan debt. It is crucial that you are able to pay off debt plus interest
with your monthly payments.
Student loan debt can lead to anxiety, fear about finances, and regret. Many students feel weighed down by their student loan debt. If you are overburdened with student loan payments
, or don't know which choices are right for you, Veitengruber Law
can help you find a workable solution. Whether you're a parent or a student who needs guidance, give us a call to set up a Zoom consultation so we can help relieve your fears.