There are several mistakes you could potentially make when taking a student loan. You could borrow too much… borrow too little… take the wrong type of loan… the list could go on. Unfortunately, any mistake you make with your student loan will have long term repercussions that could set you back after you graduate.
Asking yourself a few questions could prevent you from making wrong decisions.
Have I looked hard enough for scholarship opportunities?
Scholarship awards are your ticket to getting free money towards your college education. The more money you win, the less you will need to borrow and the earlier you will attain true financial freedom after you graduate. There is no limit to the number of scholarships you can apply for or the amount of money you can win, so leave no stone unturned in your search.
Have I considered less expensive education options?
Are you borrowing an obscene amount just so you can attend your first-choice, private university? Is it really worth graduating with so much debt? One great way to save money is by attending a community college for two years, then transferring to a college / university for the other two. You can get a quality education for a fraction of the cost.
Am I borrowing too much considering my potential future income?
The starting salaries in some professions are much higher than that of others. What is the starting salary in the career you intend pursuing? Is it at the higher end or the lower end of the scale? Calculate your monthly payments to figure out whether you will realistically be able to pay that amount every month.
Am I prepared to live frugally until such time that my loan is fully paid up?
Taking a larger loan is easy when you are still in college. But the reality will hit you when it comes time to repay that loan. The more money you borrow, the more you will have to cut back on your luxuries, at least until such time that your loan is fully paid back. What if it takes several years? If you do not think you can make such a commitment, you should think twice about taking a large loan and instead look for ways to cut down on your cost of education.
If I have to take a private loan, what is the rate of interest and the loan term?
If, despite cutting back as much as you can, you find you still need to take a private loan to cover the total cost of education, you must be extra cautious. Read through the terms and conditions carefully. Pay special attention to the rate of interest and the terms of the loan. Check with different private lenders and check their interest rates and terms. Even the slightest difference can help you save thousands of dollars over the term of the loan.
Will I be able to change my payment terms after I graduate or am I stuck with whatever I decide at the time of taking the loan?
Some lenders allow you to change payment terms, others don’t. Read the fine print and if in doubt, get the clarifications you need, preferably in writing. Having some flexibility in your payment terms can give you much-needed relief if you are struggling financially.
Use College Raptor’s free Student Loan Finder to compare lenders and interest rates side by side!