Four Costly Student Loan Mistakes And How To Avoid Them

Gold image of graduate chained to debt. Photo courtesy of Shutterstock.

In case you haven’t noticed, we’re in a lot of student loan debt. In fact, as a country we’re in considerably more student loan debt than we are in credit card debt. However, student loan debt isn’t necessarily a bad thing especially if it helped or is helping to fund an education that will pay dividends for the next several decades in the form of a higher income. Having said (or written) that, there are several mistakes that students make regarding the use of student loans and they can be easily avoided.

Using loans to fund every aspect of college. You may be able to secure adequate student loans to fund four years (or more) of college, but all loans require repayment, and usually cost far more than what was originally borrowed based on the interest rate, and pace at which it accrues. Set a “ceiling” for your student loans; most experts recommend borrowing no more than what you expect to make in your first year on the job after graduation.

Make it your mission to uncover free money, understanding that it will take time and effort—but can significantly manage the burden of your student loans. For example, there are many smaller scholarships and grants available through non-profit organizations, business groups, local chamber of commerce, city government, and state. If your hobbies have related groups or associations, or you volunteer for causes, research opportunities related to those activities. You may even qualify for scholarships based on some aspect of your heritage, health, or religion. Though these scholarships are usually a few hundred dollars, there is no limit to how many you can try to secure–and you never have to pay them back.

Not researching school price tags. Take advantage of college cost calculators to research the specifics behind the “all in” cost of colleges (sometimes called the “fully loaded” cost), including stipulations like whether students must live on campus for a stated number of years, purchase food plans, supply their own technology, or pay for recreation centers, parking and transit costs as part of tuition enrollment. If you’re able to take basic courses offered at a community college near home on academic breaks (and their credits will transfer), you may be able to save several thousands of dollars that you’d otherwise accrue in the form of loans.

I know the community college route isn’t terribly sexy but coming from someone who has spent the last 22 years in the corporate world I can tell you the no employer cares where you took English 101. Taking it at Dekalb Community College is going to be considerably cheaper than taking it at Duke. As long as the big name school is willing to accept the credits then the community college route isn’t a bad idea.  Besides, it’s the school name on your diploma that really matters, at least for your first and maybe second job.  Eventually your diploma almost completely ceases to be important and employers will depend almost exclusively on your work experience.

Not completing the FAFSA in January. Because schools have different deadlines for financial aid and processing takes time, completing your FAFSA (free application for Federal Student Aid) is the first step when you need to borrow for college, and should be done right after the new year. (You must complete a new one every year you intend to borrow for school; approval status and loan amount can change).  Though there is a common misconception that students whose families make too much money can’t get government-backed student loans, who is approved for Federal loans and in what amount depends on “need,” which is based on a complex algorithm. Federal-backed student loans are the best you’ll find in terms of interest rate, grace period, and flexible repayment plans. Make sure you can’t access them, before you assume.

Not viewing student loans as a serious debt. Because student loans aren’t always considered to be as “bad” a debt as credit cards, eliminating them can be low on a borrower’s financial priorities list. In reality, student loans may even be worse than credit card debt because filing bankruptcy won’t make them go away. Your repayment plan for student loans should be as strategic and aggressive as for any debt you carry—especially if you have income left at the end of the month to put towards it.

Source: CreditCardInsider.com