If you applied for college financial aid this year, chances are you were awarded federal student loans in your financial aid award letter. Before you accept the loans in your award - or look into other borrowing options outside of what was awarded to you - there are some things you need to know about college borrowing. Here are our top 10 tips you can’t afford to miss.
1. Do your research
Before you borrow, know these numbers: interest rate, fees, length of repayment, and monthly payment amount. Then, make sure you note any benefits that come with your loan.
2. Know your costs
Not all student loans are created equal, and not all students are created equal, either! Your financial aid needs are completely independent of anyone else’s, so you need to know your expenses, tuition and fees, rent or housing costs, technology costs – all before you borrow any money. Then, borrow what you need, and no more than that.
3. Borrow for need, not want
It can be really tempting to make a grab for as much student loan money as you think will help get you through the year comfortably. The problem, of course, is that you’re going to have to repay that debt with interest. Do you need a new laptop, or will the old one be okay for another semester or two? Do you need to live in renovated housing, or can you handle on-campus options as a Junior?
4. Understand interest
Interest is an important figure and it’s often misunderstood. Take a look at our handy student loan repayment calculator and play around with the interest variable. Check out how quickly your total repayment amount changes with just a quarter percentage change in interest. When borrowing for college, pay attention to more than just monthly payment amount; think about your overall borrowing costs because interest really adds up, even on the lowest cost options out there.
5. Know the future
Well, at least this one thing: know about how much you can expect to earn when you graduate and start working. If you’re moving into a field where everyone hits six figures after a few years, congratulations! You’re on the road to quick and painless repayment. But if you’re like most students and can anticipate at least a few lean years as you’re starting out, try to stick to this rule: don’t borrow more (for all years of college) than you’ll earn in your first year. Yes- that means your total loan amount. This calculator will help you to estimate.
6. Get scrappy
There are plenty of alternative resources out there to help you. Get a job while you’re in school. Ask your current employer about tuition assistance or tuition reimbursement. Hit up your scholarship options, hard.
7. Prioritize your goals
What’s most important to you in the long run? Extra pizza money while you’re in school, or extra pizza money when you’re living on your own and starting your career? Do you want to be able to afford a new car after graduation? How about a home one day? Your repayment will affect all of those goals. Ultimately, so will your choice of college – will you, in the long run, be able to afford this school and have a comfortable life?
8. Start repayment early
You can start making payments while you’re in school. Doing so will help to offset the interest that you’re accruing. That interest, when you start repayment, gets tacked onto your principal balance. So paying it off now (repayment should be relatively inexpensive) will be very helpful in the long run.
9. Stay on schedule
This is of the utmost importance when you enter repayment – do not become delinquent on your loans. Delinquency and default will damage your credit badly for a long period of time, making it difficult to borrow money for a car or home, sign a lease on your own, or even open a credit card. Your lenders will work with you if you give them a chance, so call them if you have a problem. Burying your head in the sand is one of the worst mistakes that you can make.
10. Remember why you’re doing this
Why are you going to school? Write that goal down somewhere, and make it your mantra. Financial aid is merely a rung in the ladder. What’s at the top?
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