Managing Your College Loans -- Before You Take Them Out
There is no doubt that college is expensive, and despite all your best efforts to work and save money for college tuition, room, and board, chances are that like most prospective students, you will fall short. College loans are becoming almost a necessity for most people (up to two thirds of undergrad students have loans to repay after graduation), but while loans can be a blessing as they help you through this financially challenging time, you should consider your loans carefully. Wise loan decisions now will save you tons later.
Your first step is to understand all your options when it comes time for repayment. If you are considering one of the main loan programs available from the federal government, such as the Perkins, Stafford, or PLUS loans, or if you are looking at a student bank loan from a private bank, consider the following.
(1) Limit the amount you borrow. Remember that every cent borrowed with your loan must be repaid, and with interest. To decide how large of a loan payment you will be able to afford after graduation, use the statistics from the Bureau of Labor Statistics to determine your expected average salary in your field. In addition, use a budgeting calculator to estimate your anticipated monthly expenses and compare this to your estimated salary. Will you be able to make ends meet with your anticipated loan repayment?
(2) Do not Default. If you borrow too much, you risk defaulting on your loan. For most loans, default usually results from missing payments for 180 days, although any deviation in your repayments from the agreed terms of the loan puts you at risk of being in default. Once you are in default, collection agencies might begin calling, and if your loan is passed to one of these agencies, expect large fees and possible automated salary deductions. Defaulting on your loan will also make receiving future loans next to impossible, at least, at an affordable rate.
(3) Understand the language of loans. One of the best ways to avoid getting yourself into trouble when taking out a loan is understanding exactly what is being said to you and knowing all the terms of the loan and what they mean. To do this, you will need to understand the language of loans. Read up on the loan process, talk to a financial advisor, and go in to your loan interview prepared.
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