Making Smarter Student Loan Decisions

Whether you have been in college for a couple of years or you are scheduled to start soon, you will find that one of the most commonly talked about subjects is student loans. As college increases in price, more and more students find themselves in need of student loans to cover the cost of their tuition and college-related expenses.

Many students will take out federal student loans to help offset some of the financial burdens they face. An investment in your college education is a good idea and can pay off in the end, especially if you stick with it. One of the most important things to remember about student loans is that they need to be paid back, so you should never view them as simply a free money option.

If you do not make smart student loan decisions, you will find that you wind up with a lot of debt once you graduate. If you are entering into a career where you make a six-figure salary, this may not be a problem for you, but if you never wind up finishing college, then this will be a large problem for you.

When it comes down to it, you need to remember that loans are not FREE. When you look at them for what they are worth, you will find that you have to pay interest on them and you end up owing almost double the amount by the time the loan period is up.

If you find yourself in a situation where you are unable to pay your student loans, the debt does not simply stop to allow you time to catch up. In fact, the debt continues to pile up and the interest continues to accrue even on the debt. You can truly wind up in a bad position, if you are not sure how to handle the debt.

If student loan debt is not properly handled, you will quickly find yourself behind instead of ahead when you graduate college and enter into the new world. BEFORE you borrow any federal student loans, you need to know all of your options and understand what borrowing student loans actually means.

Ask Yourself Some Questions

BEFORE you borrow any federal student loans, you should sit down and ask yourself a series of questions. Here are some things to think about:

1. Will you be able to refinance or consolidate your loan or loans later on down the road?

2. Do you really need to borrow the money and if so, how much do you truly need?

3. How can you get rid of your highest interest rate loans?

4. When do you plan to repay the loan by?

5. Will you be able to set aside additional money to pay your loans?

Once you have an answer to these questions, you can start to explore your options for federal student loans. If you do not have an answer to these questions, it is something you need to think about before you accept any loans. You want to make sure you set yourself up for success in the future. For example, if you choose a specific type of student loan that cannot be refinanced, you will need to understand that you will not have the option to receive a lower interest rate on this loan.

Here are some additional things you need to think about once you have answered the above questions:

1. What Are the Grace Periods?

Grace periods are a wonderful thing, especially if you ever run into trouble when it comes time to make a payment. Grace periods are a period of time given to you before you need to make a payment or before your loan is considered delinquent. For example, federal student loans have an initial grace period of six months from when you graduate, drop below part-time, or leave school. This means you have six months free of payments. Once that six months is up, you will be billed for your student loans.

It is important to know that the interest continues to accrue even during this grace period, so pay attention to your loan amounts and know your options.

2. What Are Your Interest Rates?

Your interest rate is extremely important because the higher it is, the more money you will end up paying. If you do have a high interest loan, you should explore your options and find out if you can consolidate or refinance your loans later on down the road.

When it comes time to pay off your loans, you should focus on the highest interest rates FIRST and then work on the other loans.

3. What Are Your Repayment Plan Options?

You need to explore your repayment plan options when it comes to your loans. These options vary widely between federal and private student loans. For instance, federal student loans have a number of repayment plan options to include forbearance, deferment, income-driven plans, and even extended repayment plans.

Private student loans do not always have as much flexibility and you may find yourself on a standard 10-year repayment plan. Sometimes, you may be on a 20-year plan, but you are unlikely to find any income-driven repayment plans.

4. What Does Your Budget Look Like?

Once you graduate college, you will be faced with reality and it will be up to you to know how much your student loan monthly payment is and how much money you have after you pay your necessities and bills. You will need to sit down and create a budget that will reflect what your life will be like once you graduate college. You should stick to this budget and always factor in some hiccups here and there to ensure you are always prepared for the worst.

Keep Up with Your Student Loan Payments

While it may be difficult at first, you need to make sure you keep up with your student loan payments and avoid default. You can even pay your student loans while you are in college or, at minimum, pay the interest that accrues.