Student loans can be a great thing because they allow low income students and those whose families can’t afford to finance college to get an education. But as we reported this week, student debt is on the rise across the country and rising faster than it has in the past. If you’re a rising senior or are considering returning to school as an adult, you may be considering borrowing to pay for college. Here are five tips you must read to help you borrow better:
#1 Choose Your School with Money in Mind
You may be tempted to choose one of your parents’ alma maters or the college of your favorite sports team. You may prefer a college closer to home, one that’s farther away or one that has a standout reputation. But first and foremost, you need to consider the financial aid that’s being offered. Compare offers from all schools and see which will get you into the least debt. That should weigh heavily in your choice of college.
#2 Consider Working Your Way Through School
While it’s a nice idea to be able to be able to devote yourself 100% to your studies and not have to work, realistically that may not be the best approach to take. If you can work part-time while in school to chip in for your expenses so you can borrow less, you’ll be much better off in the long run. It may be somewhat of a challenge to balance work and school, but a Bureau of Labor Statistics study showed that students that work during school actually make better grades.
#3 Minimize Your Borrowing
It may be tempting to borrow beyond what you need for tuition and books just because you can, to prevent you from having to work or to create a financial “buffer.” But you have to think very carefully before you over-borrow. At 6.8% on a 10 year payment plan, every $1 you borrow will cost you $1.30 to pay back. So if you think of every $10 pizza as costing $13 and every $100 outing to a concert as costing $130 you can see how unwise it is to borrow more than you have to.
#4 Avoid Private Student Loans
Private student loans typically come at much higher interest rates than federal student loans. And they also don’t offer flexible repayment options that federal loans do, such as Income Based Repayment that caps your payments at 15% of income and forgiveness of remaining balances after 25 years. Make sure you’ve exhausted all federal loans before turning to private lenders and make absolutely sure you need the money before you take it. Also shop around for the most competitive rate and terms.
#5 Understand What You’re Agreeing To
Finally, far too many borrowers don’t understand what they’re agreeing to when they take out a student loan. Ask lots of questions, read everything closely before you sign it and ask as many questions as you need to for you to understand what you’re getting yourself into when you borrow. Student loans can last from 10-25 years (or even longer if you’re struggling), so they are not something to enter into lightly. Use a student loan calculator so you can get an idea of how much the loans will cost you each month.
When it comes to student loans, it’s critically important that you make well-informed borrowing decisions. And once you start borrowing, even when you’re still in college, you can sign up for Tuition.io’s free student loan tool to track your debt. Many borrowers say that they didn’t know how much debt they had amassed until they received their first statement after graduation. Don’t get caught unawares and far deeper in debt than you realized!