When you’re making your plans for college this Fall, you may be still waiting on an acceptance letter from your first choice school or worried whether you will get the financial aid you need. Or you may already have your financial aid packages in hand and are comparing schools before you make your final choice. Before you say “yes” and commit yourself, there are some things you need to consider so you don’t make critical money mistakes that can affect the rest of your life.
Mistake #1 – Not factoring cost into college choice
Some seniors have their choice of a number of colleges, while others may get accepted into only one or two that they’ve applied to. It can feel great to get an acceptance letter welcoming you to your first choice school, but until you review the financial aid package, you won’t know if it’s a practical option for you.
College choice feels epically important from the vantage point of your senior year at 17 or 18 years old. But from a graduate’s perspective, years down the road, it’s different. If you know what you want to do and one particular college is the only one that can get you there, then that’s a good reason to choose.
But if several schools will meet your requirements, financial aid considerations should be a deciding factor. And if you don’t know what you want to do, opting for a cheaper school or community college to knock out core courses while you mull over what you want to be when you grow up can save you big.
Mistake #2 – Over-borrowing to finance your college years
Depending on how much your school costs and how much you get in scholarships, you may only need to borrow a little (or not at all), but often people over-borrow to have money to live on, to buy a car or do a host of other things (just because they can). None of these are good uses of student loan funds.
If you must borrow, only take out the minimum you need to get through school. You should be working while in school – at least part time – to fund your cost of living, books and other expenses unless you’re lucky enough to have a big college account courtesy of your parents.
Every dollar you borrow while in college represents a significant future financial burden on you. Unsubsidized loans begin accumulating interest from the moment you sign for them, so every dollar you borrow in your freshman year will represent roughly $1.20 when you graduate.
Mistake #3 – Overestimating future earnings
Ability to repay is a huge deal when it comes to student loans. Currently, federal loans treat every major the same way – whether you’re pursuing a Bachelor’s in Accounting, Engineering or Basket Weaving. But once graduation rolls around, there will be a huge difference apparent.
Engineers are likely to be big earners and accountants with a decent GPA should be able to score a job right out of school. But those basket weavers could struggle to find a job at all or have no other option than to serve up burgers or cappuccinos. There’s no shame in minimum wage, but if you owe student loans, it can make life hard.
Think hard about what your future earnings are likely to be and what you can afford to borrow. The maximum you should take in loans should be no more than your first year salary will (hopefully) be – but that’s the max. Better to borrow as little as possible in case you struggle to find a job.
If you do choose to borrow, sign up for Tuition.io’s free student loan tool to keep you on track from the moment you take out your first loan. You will be able to see how much debt you’re accumulating, how much it will cost you in monthly payments and how long it will take you to pay it back if you can’t afford the 10 year payment plan. Be sure to read our blog for more advice on student loans and check out our Student Loan Help Center for lots of information on educational debt.