Is taking out a student loan the right move for you? The question is one that is prominent in the minds of many students looking to enter college for the first time, no matter their age. The concept of a student loan is simple; you apply for funding from a financial institution and use those funds to pay for tuition, fees and books associated with your college education. The problem, however, is that you have to pay these funds back the issuer in agreement to the terms and conditions you sign when you make the decision to apply for a loan. Most loans do not enter repayment until you graduate from college and/or drop out of your classes. Student loans are used often to offset costs that parents and students simply cannot afford. While you can apply for scholarships and financial aid, it’s not always readily available, and what is available to you might not be enough to cover the total cost of your education. That said, we’re going to discuss the pros and cons of applying for student loans as they apply to your personal financial situation.
Student Loans are Helpful
It’s not the ideal financial situation for most college students – no matter your age – but loans can be very helpful in allowing you to pay for classes and better your future. However, this is something that only works well if you use them wisely and exercise caution. For example, these funds should be used only to pay for college-related materials in lieu of other items. This is what’s going to allow the funds to be helpful rather than dangerous.
Using Loans Correctly
The concept of using your student loans correctly is simple, but not everyone is capable of doing just that. The funds you borrow should be used only for your college expenses. This might mean your books, your tuition and even your electronics so that you can do your work and pass your classes. However, it’s not uncommon to find students using their funds for other reasons, and that’s when it becomes dangerous. When the funds run out and you need more, you are doing nothing but incurring more debt that will be paid back at a very high interest rate for many years.
Calculate the Cost of Tuition
You cannot predict to the dollar exactly how much your college education is going to cost. However, you can get a pretty good idea from the university by looking up the information on the facility website or even by speaking to someone at the college. This is the rough estimate of how much you will need for your college education, and this should be all that you take out. The more you take out, the more you will owe. And the more you owe, the more you will have to pay back when your college education is complete.
There is nothing wrong with paying your loans back early. In fact, if you start paying interest or making payments right now – even if they are not required – you can greatly reduce the amount of debt you owe when it’s time for your loans to enter repayment. And since the interest you can pay now is very little each month, you won’t really see a financial hit in the moment, but you’ll see a huge improvement when repayment begins. Additionally, the more you pay off now, the less time you will spend paying off your loans later.
What if I Don’t Get a Job Right Away?
One of the biggest questions students have regarding student loans is their job situation. It’s widely known that many college students assume they are going to use that shiny new (and very expensive) diploma to gain entry into a world-class corporation that will pay them handsomely and make the repayment of their student loans unimportant. This is not always the case. Many students find it difficult to obtain gainful employment immediately after graduation. There are plenty of jobs available, but they’re not always the high-paying jobs that you might assume you will get. The good news for those who graduate and can’t find their dream job right away is that loans are allowed to be deferred. This means you get a grace period between graduation and repayment.
Financial Difficulties and Student Loans
When it’s time to repay student loans, some college-grads can’t do it. They can’t afford to make their repayments. The good news here is that your lender is willing to work with you. Your lender is going to see that you’re having difficulties making your payments and offer you some simple solutions. They might allow you to defer repayment a little longer and they might even allow you to extend your repayment terms so that you can lower your monthly payments. It works for them because the lender ends up earning more off of interest over the life of your newly lengthened loan.
Is it for Me?
We cannot answer this question for you. However, we can provide you with the information that makes it possible for you to make an informed, educated decision. If you want to better your life and obtain a college degree, go for it. As long as you take only what you need, use it only for what it’s for and stay on top of your finances throughout your college career and beyond, there will be no real issue with taking out and using student loans. As long as you are responsible, the concept of using a student loan to help pay for college is simple.
If you have no credit, it can be difficult to apply for a loan and you might need a cosigner to help you out. Many lenders allow you to ask a parent to apply for the loan in your name so that you can build credit and obtain the financing your need to become educated. Good luck in your college endeavors, as well as with making the choice that is right for you.
Photo by Imeh Akpanudosen/Getty Images for UCLA