Although the price of education is increasing, it is still considered a worthy investment that will help students increase their earning power later on. Paying for that earning power, however, can be a tricky business. Rather, finding the right student loans can be a tricky business, but you don’t have to fall victim to the misunderstandings that occur when determining which loan is best for you and/or your child. Unless you are a seasoned borrower, the chances of making an error when filling out your loan applications are higher than you might like.
Here are 4 common errors that borrowers make:
Borrowing Too Much
The most important thing to do when deciding how much money to borrow is to estimate the cost of attendance (i.e., tuition and fees, room and board, miscellaneous necessities, etc.) minus out-of-pocket costs you’re spending each year. Perhaps even one step prior to that, you want to decide which college is right for you based on its sticker price. Remember, the sticker price includes some costs that aren’t readily noticeable.
Regardless, get an idea of how much everything will cost and determine what type of earning power you will have after you graduate. It’s challenging to know what you will be doing when you graduate when you’re just a freshman, but estimate a little lower if you have to.
You want to make sure that you’re not up to your eyeballs in these types of bills when you’re done with school. The best course of action is to research the course of study you’re embarking on, talk with your college counselors about the jobs that are available in the current market, and the salary you can expect to have.
The biggest mistake that families make is that they don’t think about future implications when taking money on a loan basis. The mentality for most is that if they borrow more, they’ll at least be covered in case of emergencies. But really, it doesn’t always work that way. You have to think about the interest rate that might be accruing day by day.
Taking Out Alternative Loans
Alternative (or private) loans are available for students who can not or do not take full advantage of the Federal loans available. Families with disadvantaged backgrounds can typically find a slue of grants available to them. Whatever doesn’t get covered by a grant can be supplemented with a Federal loan.
Many middle class families, however, don’t have the luxury of a grant. In those cases, they borrow Federal Stafford Loans (which are subsidized or unsubsidized). If the family is truly paying the cost of education together, they are eligible to accept the Federal Family Education Loan, which can also subsidized or unsubsidized. However, the student is on his or her own, the Family loan isn’t always an option.
In many cases, the student will start looking elsewhere for money. This is where the private loan companies play a role. Because they can, they will let you borrow more money at a higher, variable interest rate, and almost always give you more than you really need if you ask for it. This can become such a nightmare if you fall for it. The best thing to do is to take a little time and do some research to see what your options are.
Not Reading the Fine Print
Read the details to make sure you’re not missing anything. Make sure there are things like deferment allowances if you want to quit your job and go back to school.You’ll want to defer paying your loan if you don’t have the income to pay more than your monthly minimum cost of living.
Not Being Involved
Students and parents both need to be involved in the process. If parents are doing the borrowing, the person who will ultimately be responsible for paying the loan (e.g. the student), should be completely involved so that he or she is aware of what is expected after the 6 month grace period is over. Be sure to understand how much debt is accruing, because that debt will sit with you for a while when you graduate and can impact your future career, family, and other major life decisions.
Have you made any mistakes that you think could benefit others? Please share them in the space below.