Signing a student loan is a big responsibility for any new college student, even if you have a co-signer. While you do need the money to go to college, it’s important to understand a few things before you sign the dotted line. Here are four aspects you should know before signing to the student loan terms:
Understand The Interest Rate
This may seem obvious, but many students do end up signing for their student loan without another consideration to the interest rates. This is especially important if the loan is private. Interest rates vary from bank to bank and loan to loan. The first offer you receive may not be the best suited for you and may have higher rates.
Shopping around for a private loan is a must. If you’re looking for lower rates, see if a parent or another relative with good credit can co-sign for you.
Understand The Repayment Schedule
Every loan, private and federal, has a different repayment schedule. Some will not ask you to start paying it off until you graduate or leave college, while others send bills immediately after you sign. A few that request money immediately, however, will give students the opportunity to defer loans until after they graduate.
If you’re accepting a loan that requires payment immediately, do you have a plan set up? You should know exactly how you’re going to be paying the bill every month. If you choose to defer, make sure you understand any requirements that arise from the deferment. For example, unsubsidized federal loans begin to accrue interest immediately. If you defer an unsubsidized loan, interest is added onto the principal amount when you graduate, meaning you pay interest on this accrued interest.
Is It The Right Choice for You?
As stated previously, it’s important to not choose the first loan that crosses your desk. Do your research. A subsidized federal loan is a great choice, but you may want to weigh the pros and cons of taking on an unsubsidized federal loan. One bank’s private loan offer may have a steep interest rate and payment schedule that you can’t meet, while another is perfect for your goals.
How To Handle Your Finances
Knowing how to handle your finances is a must-have skill that any college student can benefit from. Understanding your finances and your student loans are key to making sure they are paid off in a timely matter. If you don’t keep an eye on it, it’s extremely easy to watch the interest accumulate until you are in serious debt.
To help control your finances and student loan debt, set up your payment schedule, work on a savings account, and consider the benefits of partnering up with a financial buddy who can help you keep on track with your money.
Choosing a student loan is a huge part of entering college, but it’s important to do it wisely. Ignoring the details of a loan or accepting the first one you are offered could be an extremely costly decision, especially down the line. If you’re unsure about your loans, ask your school’s financial aid office or a CPA for assistance.
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