How To Manage Your Student Loans and Save Your Money, Money Making idea for Student
There are three cardinal rules to follow with student loans: 1) borrow only what you need, 2) manage your money wisely, and 3) keep track of what you owe. Managing your student loans includes managing all of your money, because if you overspend, you’ll have to overborrow. Every dollar wasted or spent carelessly is a dollar you’ll borrow later and another dollar plus interest you’ll have to repay.
Use student loans to finance your education, not your lifestyle. You’ll be paying them off for a long time, so spend the money on things that are directly related to your education, like tuition, room and board, and books. It doesn’t make sense to use this money for basic living expenses like clothes, groceries, and entertainment.
Remember that the amount you’ll have to repay on your student loans will be significantly more than the amount you borrowed because of the interest expense you’ll incur. When you think of the amount you’ve borrowed in student loans, add at least 30 percent to it so you have a realistic number in your head of what you’ll really owe.
For most people, a college education requires sacrifice. You can sacrifice now or you can sacrifice during the years you’re repaying your loans. Don’t bury your head in the sand when it comes to managing your student loans. Know the exact total and the amount your payments will be, based on what you’ve borrowed so far, and do your best to minimize the amount you have to borrow.
Don’t take your parents’ ability to contribute financially to your college education for granted. Most parents of college students channel money to their kids at the expense of funding their retirement. You have many years to pay off student loan debt, but your parents have a very limited time to build their retirement nest egg, so don’t make their sacrifices greater than necessary. Spending your money wisely will benefit both you and your parents.
When calculating how much student loan money you need, ask yourself these questions: Can you reduce your expenses? Work more during the school year without jeopardizing your grades? Work more during the summer or find a higher paying job? Have you done your homework on searching for scholarship money? The more money you can earn and the more you can reduce spending, the less you’ll have to borrow (and repay).
Don’t assume that you’ll get the best deal from a “preferred lender” listed on your college’s website. Listing preferred lenders is yet another way that some colleges are making money off students by accepting a kickback or some type of financial consideration when students sign up for loans. These “preferred lender” loans can cost you considerably more than other loans, so be sure to shop around to find the best deal.
Eight Warnings about Student Loans
Before you take out student loans, think long and hard about how committed you are to finishing your degree. Whether you graduate or not, you’ll have to pay off your student loans. It’s difficult enough when you have a degree and a good job, so imagine having to pay off tens of thousands of dollars when you have no degree and no marketable skills that qualify you for a higher-paying job.
Even bankruptcy will not release you from your student loan commitment, so never take a student loan for more than you absolutely need, and never use it on anything but college essentials. You’re obligated to repay student loans even if you never graduate or you can’t find a job after graduation.
No matter what kind of financial tangle you get yourself into while in college, you’ll never escape your unpaid student loans because they can never be wiped out except by participating in a loan forgiveness program offered for graduates in certain fields. Think twice about spending that student loan money on parties, clothes, and spring breaks.
When you take out a student loan, you’re making a commitment that lasts longer than most marriages, so make borrowing your last resort. First, exhaust all the possibilities for grants, scholarships, work-study programs, and other options available to you. Use every trick in the book to control your living expenses and other college costs to avoid graduating with tens of thousands of dollars of student loan debt that will take between ten and twenty years to repay.
Before you take out a loan for your education, think about the obligation you’re taking on and your ability to repay your student loans. If you don’t repay the loan according to the terms of the promissory note you signed, you’ll be considered in default, which has serious consequences, including a negative impact on your credit score.
Don’t fall into the trap of borrowing money for college based on what you think you’ll be able to earn after graduation. If you fail to consider the fact that your starting salary may be lower than you anticipate and it will probably take you several years to build up to your expected salary, you may have a tough few years after graduation as you struggle to make your student loan payments. Underestimate the salary you expect to earn for the first few years of your career when calculating the amount of money you can comfortably afford to repay after graduation.
If you have to cut back on your classes in order to earn more money for college, beware of dropping below half-time status (usually viewed as six credit hours per semester). To continue to be eligible for deferment of your student loans, you must qualify as at least a halftime student. Otherwise, your student loans become due within six months, even though you’re still in school.
If you’re having trouble making your student loan payments, get help immediately. Defaulting on your student loans will damage your credit far into the future and will preclude you from obtaining any additional financial aid.
Tips for Managing Your Student Loans
Don’t borrow against the future to support an unrealistic lifestyle while you are in college. Before student loans were so prevalent, college students were frugal by necessity and they graduated with much lower debt. Skimp and go without now and you’ll be far ahead financially when you graduate.
The longer you take to pay off your student loans, the more they’ll end up costing you. Pick a payment schedule that’s realistic but will allow you to repay your loans as quickly as possible.
If you have a choice between a subsidized student loan and an unsubsidized student loan, choose the subsidized student loan first. The government or your school will pay the interest on subsidized loans while you’re in college. You’re responsible for the interest on unsubsidized loans, and can either postpone the interest payments until graduation or pay the interest while you’re in school. Postponing payments will cost you more in the long run.
It’s easy to have a false sense of security about your ability to pay off your student loan debt because payments can be deferred until after you graduate. If you work during the semester, consider beginning repayment while you’re still in school. You’ll be less likely to borrow more than you need and you’ll be more likely to manage your student loan money carefully. You’ll also reduce your interest costs.
Don’t take out a bigger student loan than you absolutely must have to get through the semester. It’s much too tempting to spend it on nonessentials. You can always apply for additional loans later if you need the money for the next semester or school year.
If you have student loan money left over after paying your tuition, room and board, and books for the semester, either give it back to the lender or put it in a separate bank account. You’ll be less likely to fritter it away on nonessentials if it’s not in your checking account.
The interest rates on savings accounts may be so low they hardly seem worth bothering with, but even a little bit of interest will help offset the interest you’re incurring on the borrowed money. Place all but your monthly living money in a savings or money market account so it will earn a little interest.
If you plan to be a childcare provider, nurse, doctor, nurse practitioner, physician’s assistant, midwife, dentist, dental hygienist, psychologist, lawyer, or teacher, you may be eligible to have part of your Stafford loan wiped off the slate by working for two years in a lowincome area after graduation. Check with your student loan provider for details.
If you complete a two-year term in the Peace Corps, you can wipe out 30 percent of your Perkins loan balance. You may also be able to defer your student loan payments while serving in the Peace Corps.
If you have to take out student loans, try to take them in this order to save money: Federal Perkins loans, Federal Subsidized Stafford or Direct loans, Federal Unsubsidized Stafford or Direct loans, and Alternative loans.
How much is too much? Lenders consider monthly student loan payments exceeding 8 percent of your monthly income to be unmanageable. If you make $40,000 a year after graduation, student loan payments of $266 per month will put you into this category. Most graduates begin their career in lower paying entry-level jobs and it takes several years to earn the salary they expect, so the debt burden may be greater than they think.
A study by the Cambridge Consumer Credit Index indicated that 75 percent of college graduates with outstanding student loans say the loan payments prevent them from making major purchases such as a house or car. The higher your student loans, the less disposable income you’ll have left over for everyday spending and major purchases, so use your student loan money wisely. Borrow only for essentials so you can enjoy the income from your job after graduation.
Be smart about borrowing. Base your student loans on your best estimate of how much money you’ll need for necessities, not on how much the lender will lend you. Use an online student loan payment calculator to calculate what your payments will be.
When dealing with large amounts of money from student loans or scholarships at one time it’s easy to misjudge how far that money will actually go. Write down the sum on a piece of paper and deduct all the expenses that the money needs to cover, like books, groceries, tuition, transportation, and entertainment. Divide the remainder by the number of weeks left before you get your next large payment; that’s how much you can spend on everything else each week. Having this perspective will help you avoid overspending and running out of money.
Just because the financial aid award letter says you’re eligible for a certain loan amount doesn’t mean you have to borrow the whole amount. By reducing your expenses, sticking to a spending plan, and working part-time, you can reduce the amount you need to borrow, making life after college much more enjoyable when it comes time to pay off the loans.
If money is tight or you have to borrow a large amount to attend a private college, consider a state university instead. Tuition and fees at private schools average four times higher than public schools.
It’s easy to borrow more than you can afford to pay because needs-based student loans don’t require any payments while you’re still in school. Calculate how much you need for necessities for the school year and borrow only that much. You can always borrow more later if you really need it.
If possible, pay the interest on your unsubsidized loans while you’re in college. You can defer the interest until graduation, but you’ll end up paying more because the interest compounds while you’re not making payments.
Lower monthly payments on your student loans results in a longer repayment period, which means more interest expense. Keep this in mind when choosing repayment periods.
Seek immediate assistance if you feel unable to make a loan payment on time. The consequences of defaulting include being denied credit cards, mortgages, and car loans; incurring legal fees; having your wages garnished to repay the loan; having all your student loans immediately become payable in full; being denied other types of federal financial assistance; having your income tax refunds seized; being harassed by collectors, and other unpleasant actions.
Many student loan lenders offer discounts and incentives if you have your student loan payments automatically deducted from your checking or savings account each month and you make timely payments for a period of consecutive months. Take advantage of this easy way to reduce your interest rate and the total cost of your student loans.
If you’ve started repayment of your student loans, make sure you make the full payment on time every month even if you’ve lost your coupon book or you never received one. Otherwise you’ll be considered in default. Partial payments are not acceptable and will also place you in default.
Find out the details of any student loans you’re offered, such as repayment terms and interest rates. Compare the loans so you can make intelligent decisions about which ones to accept based on all the facts. This will help you minimize your borrowing costs.
Keep track of the student aid you’ve received so far by visiting the U.S. Department of Education’s National Student Loan Data System (NSLDS) website at www.studentaid.ed.gov. This central database coordinates information sent from the various financial aid providers into one place that’s accessible to students. You can view your loan and grant amounts, the status of your loans, outstanding balances, and disbursements. Keeping tabs on this information can also help ensure you don’t miss a payment.