Student Loan Mistakes

Pros and Cons of Student Loans

  • Timely repayments build credit: Meeting your loan repayments on time helps you start to build a solid credit history. This will increase the credibility of your credit profile when applying to major loans after college, for example when buying a house or car.

  • Flexible federal Loans: These loans are perfect for borrowers lacking credit history and generally have the lowest interest rates. Depending on your financial circumstance, the government may also offer to subsidize your loan, so the sum won’t accrue until you start your repayments.

  • Multiple loans needed: Not everyone has access to scholarships and although more favorable, federal loans have borrowing limits. Therefore, it is common to take out less accessible private loans to cover your whole college cost.

  • Find a credible co-signer with a good credit profile: Due to a lack of credit history, private loan lenders consider the credit profile of their co-signer. In turn, you may be offered a lower interest rate if your co-signer is seen as reliable.

  • Private loans offer variable rates: These rates change over time. A benefit is that variable rates may occasionally be lower than fixed rates but could also be considerably higher. It is important to ensure you have enough savings to cover these fluctuating costs.

Student Loan Mistakes to Avoid

  • Borrowing more than needed: Although you may not need to pay off your loans immediately, it should not be seen as “free” money. The more money you borrow, the more you may need to pay after graduation depending on late payments and interest rates.

  • Relying on loans to cover living expenses: Student loans are offered as investments for your education and should cover the resources to help you obtain a college degree. Don’t give into temptation by using the money for shopping sprees when you need to pay tuition fees first.

  • Choosing the wrong repayment plan: The plan with the lowest minimum repayment per month doesn’t necessarily mean it’s the best for you in the long run. The longer you take to pay off student loans, the more you usually end up paying in total due to accrued interest. Try and work out the highest repayment value that you can afford.

Tips to Quickly Paying Off Student Loans

  • Side hustle: Why not dedicate part of your free time outside of school to earn some cash? Not only can you start paying off your student debt, but you also build employability skills for after graduation.

  • Live a frugal lifestyle: Eliminate unnecessary expenditure by assessing money on monthly costs. For example, save on household bills by comparing electric rates in PA to find the most affordable one. Practicing energy-efficient behavior at home also saves more on your utility bill.

  • Save money on food and drink: Cooking your own food instead of going to restaurants and shopping at discount stores are the best ways to minimize extra spending.

  • Research repayment plans: Considering you pay your loan installments on time after a certain amount of years, you may qualify for loan forgiveness. Depending on the service provider and their requirements, you can be free from repayments as soon as 20 – 25 years.

  • Eliminate debt as quickly as possible: If you have other types of debt, use the avalanche method, and pay off whichever has the highest interest rates first.

Conclusion

Applying for student loans is a common milestone for students. In return, it is essential knowing the pros and cons of responsible loan borrowing to minimize debt once you graduate. Regardless of the type of loan you borrow, it is safer to take only the minimum you need to cover your college expenses.