Student Loans: How to Spend the Money Wisely – Part 1
The student loan statistics in the news are sobering. Americans owe more than $1 trillion in student loans and $150 billion of these student loans are from private lenders according to the Consumer Financial Protection Bureau; which means those loans often come with higher interest rates than federal loans and are almost impossible to shed in bankruptcy. The cost of higher education also continues to rise, making borrowing seemingly the only way for many to obtain a college degree. In the first half of this two-part article you’ll learn why taking all the money thrown at you isn’t a good idea when trying to manage your money wisely.
Borrow Only What You Need, When You Need It
It is important to have a plan. The amount you borrow is not the amount you’ll have to repay. By the time you finish paying off your student loans, you’ll probably end up paying around 30% more in interest, than the amount you borrowed, depending on how many years you take to pay the loans off. Because of this you need to plan how much you will need for school and only borrow that amount so you don’t wind up with a large repayment amount later on.
You may also want to consider the interest rates on your loans when determining how to allocate college financial aid. If you have both federal and private loans, choose the college loans with the lowest interest rates for tuition expenses. As tuition will likely be your highest expense, the lower interest rate will make it easier to repay higher amounts in the long run.
If you’re applying for private loans as an undergraduate, you may not have enough credit to be approved on your own. Ask a parent or guardian who has established credit to co-sign your college loan. This could not only help you get approved, it may also help you secure a lower interest rate. Work with your lender to explore student loan options for college that will cover your expenses and choose the right repayment plan for your situation.
Another tip, keep track of what you owe in student loans and use an online calculator to estimate what your payments will be at today’s interest rates, while keeping in mind that rates could continue to go up.
Check back with us next week, when we tackle the second part of our two-part article on “Student Loans: How to Spend the Money Wisely.” We’ll discuss how sitting down and talking to your parents about student loans could actually save you some money.
To learn more about how Westface College Planning can help you navigate the financial aid process call us at 650-587-1559 or sign up for one of our Tackling the Runaway Costs of College Workshops or Webinars.
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