“When student loan holders were asked whether, given the chance to do it all over again, they would make the same choices about student loans or do something different, more than half (53%) said they would take a different course of action.”Excerpt from the 2015 National Financial Capability Study (NFCS).
Taking out a student loan can be a nerve-wracking, scary process. But it doesn’t have to be. Ironically, the process is a learning experience, much like what the loan money will be used for.
If you’re considering a student loan, you’re not alone. According to the NFCS study referred to previously, 26 percent of American adults indicated that they currently have a student loan for themselves or a family member. And among those with student loans, 73 percent borrowed for their own education, the report says.
Here are some things to consider when taking out a student loan:
- Know your options. There are many different types of student loans available to you, including federal government loans such as Direct and Perkins loans, as well as private loans from financial institutions like banks or credit unions. There are even personal loans that can be used for college expenses like rent, books, and computers.
- Don’t borrow more than you need, or can afford. Keep in mind that your future finances are going to be impacted by repayment of your loans. Experts recommend that your loan payments shouldn’t exceed 8 percent of your salary, so it’s a good idea to research starting salaries in your desired field before you commit to a loan. This will provide insight into how much you can afford to borrow for your education. In order to minimize the amount you’ll have to borrow, it’s a good idea to start saving for college as soon as possible. There are many online calculators available to help you establish a college savings plan.
- Get a firm grasp on the terms of the loan. You’re on the hook to repay the loan as outlined in the terms. That means that even if you don’t complete your education, secure a job after graduating, or weren’t satisfied with what you got out of schooling, you’re still required to repay the loan.
- Keep all copies of your loan documents. Considering that it will probably take years to repay your loan, you’ll want to be able to refer back to those documents in case a question or concern arises. Besides, it’s nearly impossible to remember all the details surrounding a loan.
- Stay in touch with the company that’s handling your loan. Notify them if you change your address or name, and let them know when you graduate, withdraw from school, transfer to another school, or drop below half-time status.
- Plan to start repaying your loan on a timely basis. Missing your student loan payments can wreak havoc on your credit history and make it very difficult to buy a house or car down the road. You can help prepare for repayment of your student loans by saving money while you’re in college. This way you’ll be able to make your payments even if it takes you some time to find a job after graduation. And remember that if you do run into difficulty repaying your loan, contact the loan company immediately to discuss alternate payment options.
Knowing in advance what to expect when taking on a student loan can make the process of securing one (and repaying it!) smoother and easier.