Pursuing higher education also entails high costs and expenses. It’s unfortunate, but it is the reality that many college students have to deal with. However, there are financing options that will help you pay for college or higher education if you choose to pursue it—like a student loan.
You might already be aware of the numerous horror stories surrounding student loans. It could indeed be crippling, especially if you haven’t done your due diligence before taking one. That’s why you must plan out your college course and repayment structure well. Below are eight things you should keep in mind if you are thinking of taking out a student loan:
1. Know Your Loan Terms
Every loan has unique terms and conditions, and student loans are not an exception. Once you take a student loan, you will sign a document or promissory note that contains the full terms and conditions of the loan—including the repayment scheme. You have to read and understand these terms properly to avoid conflict in the future.
Generally, a federal student loan would start its repayment period six months after your graduation. Student loans that are acquired from private lending institutions (like banks), will have varying terms, conditions and repayment periods.
2. Never Borrow More Than You Can Handle
One of the things you should keep in mind before taking out a student loan is not to borrow more than your estimated starting salary. To determine this early on, you must know the possible careers that you will have once you finish college, and how much the average entry salary is for each position.
This way, you will have a rough estimate and set a ceiling for your loan. If you end up borrowing more than what you would make post-grad, you might be paying off the loan for many more years.
3. Consider a Variety of Student Loan Offers
There are several institutions that offer student loans. This includes private loans from banks and federal loans. Federal loans are said to be the best option since they have generally low and fixed rates.
Furthermore, a federal loan also has provisions for deferment — a time period where loans don’t accrue interest. It offers a grace period before the repayment starts. Federal loans also have different kinds of repayment programs like income-based repayment.
Private loans, however, tend to have high-interest rates, and they usually fluctuate. Moreover, getting a private student loan would not allow you to participate in any government repayment program.
4. Be Open To Refinancing
It’s actually possible to refinance your student loan with a private lender at lower interest rates than what you’re currently paying. If you’re hesitant to refinance, this study from Education Data may help you see a clearer picture.
As you compare the terms of your new loan to that of your current student loan, don’t fall for lenders who will show you reduced monthly payments. This could be misleading as you may actually end up paying for longer-term loans and the total interest might even be higher. So, before you proceed with refinancing your loan, make your own calculations first. If necessary, consult an independent accountant or financer who can do the math for you.
5. Consider Having A Co-Signer
In certain instances, having a friend or family member co-sign your loan may help you attain lower interest rates, which may not be possible if you sign up for the loan alone. A co-signer of a student loan basically agrees to act as a guarantor. This means that he or she also pledges to repay the loan in case you fail to do so.
This additional security is more attractive for lenders—especially if the person has an impressive credit history. But before you decide to get a co-signer, always keep in mind that you are still the one who is primarily responsible for the loan. So, make sure not to let them down.
6. Be Aware of Your Repayment Options
There are some repayment options that are designed to help you repay your student loans and these include loan forgiveness programs and income-level programs. To make your loan payment more manageable based on your income, choose an income-driven repayment program that is based on your financial situation and loan.
An income-driven repayment plan enables you to pay between 10% to 20% of your discretionary income to your student loan every month instead of the predetermined payment based on the total loan amount.
You can also research loan forgiveness programs, which are offered for particular professions or by state. Such programs can provide you some funding while you are in college, or forgive a portion of your loan if you get a certain job, like a teaching profession. Another option is the federal government’s public service loan forgiveness program, which is commonly offered to students who end up working in public service jobs like nonprofit organizations.
7. Think About How the Debt Can Impact Your Early Professional Life
Taking out a student loan can be an investment in your future, particularly when the loan enables you to focus more on your coursework to complete your degree on time. But as a student, you must still be conscious of how much you’re borrowing.
It’s also essential to know how a student loan works and think about the obligations it would later entail. Remember that taking a certain amount of debt can have long-term implications. For example, it may take some time for you to start saving up for a home because you still have student loans you need to prioritize.
8. You Can Ask for Relief If Necessary
Life could be hard. As a result, there might be times that you would be struggling to meet your monthly payments. In these situations, you could qualify for a forbearance of your student loan. This offers some relief, especially if you are still struggling to find a good-paying job or if you meet an unexpected accident or emergency. In fact, a student loan forbearance is granted by the government during the coronavirus pandemic.
It’s possible to request forbearance if you’re unable to make your scheduled monthly payment because of medical expenses, financial difficulties, change in employment or other reasons acceptable to the loan provider. A forbearance can be granted for 12 months or less.
A student loan is something that you shouldn’t take lightly. Knowing how it works can help you plan better for borrowing or repaying it in the future. If you’re not sure whether a student loan will benefit you or not, you can always ask for help from experts.
Aside from that, you can get suggestions from your parents or ask for insights from other people who have taken and paid out their student loans before. This way, you will learn how to go about the process and determine a manageable student loan for yourself.