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Only borrow what you need for student loans and exhaust all grant and scholarship opportunities first.
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Americans have amassed over 1.5 trillion in student loan debt and it’s still growing.
Many people borrow without fully understanding the debt.
Understand your repayment plan and don’t over-borrow.
Many students sign up for student loans without really understanding what the ramifications will be down the line.
Forty-four million student loan borrowers in the US owe a collective 1.5 trillion in debt, but each year there are more and more students signing up for debt that they don’t fully understand. Student loan payments can span an entire lifetime, with more Americans shouldering the student loan burden into their later years.
I vividly remember my own student loan debt journey of paying off nearly $70,000 in seven years. It is often said that student loan interest rates are the lowest rates you can get on debt, but student loans can have a greater impact than any credit card or auto loan ever could.
It’s really important to understand what you are signing up for with student loans — before the payments start.
Here are three things I wish I knew before taking out student loans:
1. Interest is a very big deal
Although you may have a low-interest student loan, that interest starts to accrue while you are in still school and not making any payments. So when you graduate, the amount that you owe has already increased.
In addition, when you do start making payments, depending on your repayment plan, you may be making interest-only payments, which means that your payments are not being applied to the principal. The result is that the amount owed continues to grow even though you are making payments.
Make sure that you know everything about the loan that you are taking out, even repayment options. It may seem far away, but you will be in repayment before you know it.
2. Don’t borrow more than you need
You may find this hard to believe, but when I was in school, I was encouraged to take out loans to cover tuition and living expenses. Yes, living expenses. And people did it. So if tuition was $20,000, students would take out another $20,000 for living expenses. It’s easy to see how someone can amass $50,000 to $100,000 in student loan debt.
Only borrow the amount you truly need in student loans. If you need anything else, research scholarships, work-study, and even a part-time job. There is no reason to increase your student loan debt for late-night pizza or paying your cell phone bill.
3. Factor in future salary and job prospects when borrowing
As you think about the amount that you want to borrow, do the research on the salaries available in your field of study and determine what you can pay back based on that. Make sure that you have savings at graduation in case your job search takes longer than anticipated. Depending on your student loan provider, payments can start six months after graduation, whether you have a job or not.
Bonus: What I did right with my student loans
The aforementioned is what I wish I had known before borrowing student loans. But what did I actually do? First and foremost, I went to an in-state college. I cannot say enough how much money that saved me in the long run. Next, I was awarded a state grant and several scholarships before student loans were even a part of the calculation.
You should have exhausted every grant and scholarship you can possibly qualify for before you even consider a student loan. There are scholarships for everything: field of study, where you are from, grade point average, fraternal organizations, church affiliations. There are scholarships for tuition, books, and even living expenses.
Understanding the unwanted lifetime commitment student loans can be, the impact of student loans needs to be fully explained and understood … and really, the last option for a student furthering their education.