Now more than ever, student loans are the no.1 financing option of choice for students looking to pay for college. As a result, 66% of undergraduate students face debt after graduating, according to the National Post secondary Student Aid Study performed by the U.S. Department of Education.
To make smart borrowing decisions, it is important to investigate all of your options prior to paying back your loans. Here are some easy guidelines that apply to the Perkins, Stafford, PLUS, and other independent bank loan programs.
Limits!
Remember every dollar borrowed must be paid back, including interest, which could lead to a longer repayment term.
"It's easy to think now that a $200-a-month payment won't be a big deal," says Hilmer, "but those payments can take a big chunk out of your monthly income. Most high school students don't realize how many bills they're going to have when they live on their own."
To know how much is too much, try to estimate how much you can pay back come graduation time. This means evaluating your future salary and incoming expenses.
The best way to approach this is to use budgeting calculators that you can find on major lender sites like Chela Financial or the Bank of America. These handy tools let you estimate monthly expenses like insurance, food, rent, clothes, and more. From there, your estimated salary can be compared to these expenses. Many calculators come with salary information. By taking your estimated salary and subtracting estimated expenses, you can figure out how much monthly loan payments you can afford.
Stay Away from Defaulting!
If you end up borrowing too much, you might default which means failing to pay back the loan according to the terms agreed upon. A promissory note is responsible for outlining these terms. Technically, a default occurs when you've missed payments for 180 days or more. From here, collection agencies are responsible for trying to charge late fees. Defaulted student loans are worse since it could be included as part of your credit history for many years. If lenders see you are in default with a loan, you might be denied for mortgages and other personal loans or get a higher interest rate. Making regular payments may even have lenders awarding you discounts, so tread carefully.