One of the most important questions being, “Do I really need it?”
When I took out student loans, I did it all wrong. I was so eager to start classes that I just had the mindset, “Yeah, yeah, yeah…just tell me where to sign.”
Now, after a year of repayment, I’m here to help prevent you from making the same mistakes.
Here are three questions to ask yourself before taking out student loans.
1. Do I really need it?
The answer to this question for me was no. I had in-state tuition and a scholarship. Had I just saved up some money, I could have avoided school loans all together. Even if you can’t gain total funding, maybe you can get most of the way there on your own, via work, scholarships or grants (fill out those applications!).
When asking if you need to seek student loans, also ask how much you need. I took out way more than I needed. I used the extra money to travel and have fun. Only take out what is necessary, otherwise you may end up paying hundreds a month in repayments.
Even then, some would argue that student loans are a positive thing.
“Student loans are an excellent investment in one’s future,” said Judy D. Roberts, financial aid advisor at Sierra Nevada College. “Not only do they help the student establish good credit, but they teach them to be responsible and good financial planners.”
If you take out more than is necessary, do so consciously, as Roberts eludes to, and not carelessly, like I did.
2. Should I get public, private or institutional loans?
Public loans should always be your first choice. These are loans offered by the government, with low interest (around 6 percent) and a fixed rate, meaning what you were promised is what will remain throughout the loan’s lifetime. The best public loan you can get is a subsidized one, where interest doesn’t accrue while you’re in school.
Depending on the college, though, you may need more than what public loans can offer you, which is where private and institutional loans come in.
Private loans are typically granted by a bank or financial institution. Often times, the interest rates are higher (sometimes going into double digits) and are variable, meaning they’ll change throughout the course of your repayment. And you can’t consolidate private loans with your public loans, leading to paying several places each month, which is frustrating.
Institutional loans vary. These are loans granted by your college. The one institutional loan I took out was about $2500, with a 6.5 percent interest rate. I pay $50 a month. It’s harmless. You’ll just have to see what your school offers, but public loans should always be your first choice.
“Most students do not need more than the amounts offered in federal direct loans,” Roberts said. “And if a student starts borrowing through private and alternative sources, they could accrue a great deal of debt that is not necessary.”
3. How will this loan affect my future plans?
Do you want to travel after college? Maybe move to New York City, like I did? Well, if that plan lasts more than six months (when you have to start paying back your loans) then you better factor in your monthly student loan bill.
Loan repayment can affect your plans. I was barely scraping by in New York City and when that repayment came near, I had to make a decision: Should i get a higher paying job, a second job or move back home? An education is worth it but how can you get one while still traveling? Ask these questions ahead of time.
Also, consider your career path. If you’re going to be a doctor or lawyer, you’ll probably make enough money a year to comfortably pay off any student loan debt you have. But what if you’re going to one of the top education schools to become a teacher?
“If the student is planning on going into a field like teaching that could potentially be a lower paying job, they should only borrow what is absolutely necessary,” Roberts said.
Sometimes knowing your future job can be tough, especially for less specific studies, like a business major. But consider making a list of five potential career paths, research salaries for those careers and take out your loans accordingly.
Otherwise you may end up paying $1,000 a month for your $80,000 in loans, with just a coffee shop salary, like one of my friends.
Think about your career path, necessity, cost of living, and plans, and take out those loans wisely.
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