"Should I get student loans?"
If you are attending college or are thinking about going to college, it's likely you will apply for a mixture of grants, scholarships, and federal student loans.
Sadly, there are some grave misconceptions by some of the students that utilize these loans. I had a friend tell me it was "free money" and that she wasn't worried about paying them off. Student loans are serious! There is nothing free about them.
Before we get into the details of student loans, you should ask yourself if you really need a college degree. Personally, I am a strong believer in the power of a college-level education. Both my husband and I have college degrees and have already set up a fund for our child.
But there are successful men and women who never received a degree, like the creator of Facebook, Mark Zuckerberg. So answer these questions honestly before you take out any student debt.
Does the job you want require a college degree?
Not all jobs require a college degree, like being a web developer or a medical secretary. Thoroughly research your dream job to determine if paying for expensive tuition is really the right path for you.
Will your desired college degree provide enough income?
Be realistic with yourself when you answer this question. Obviously, you can't tell the future but you can easily gauge the potential salary by doing research into the career. Not all jobs requiring a degree can provide an attractive salary. Steady income or not, you are still responsible for paying back your loans once you graduate.
Did you answer yes to the questions above? Do you still need a student loan? Here are a few of the questions you should ask before you borrow.
1. What are the different types of federal loans?
There are various types of loans and each one has different rules and requirements.
- Direct Unsubsidized: For undergraduate students. Loan amount is calculated based on your expected family contribution.
- Direct Subsidized: For undergraduate, graduate, or professional students.
- Direct PLUS: For graduate or professional students, as well as parents of undergraduate students.
- Federal Perkins: For undergraduate, graduate, or professional students with exceptional financial need.
You are responsible for paying either all or some of the interest that accrues on these loans while you are still in school. The only exception is with a Direct Subsidized loan, where the government pays for the interest until you have graduated or left school.
2. What is the difference between variable and fixed interest rates?
The interest rate you receive will depend on the type of loan you apply for, either federal or private. Federal loans (listed above) have a fixed interest rate, meaning the interest rate you are given when you accept the loan will remain the same during your payback period. Private loans may have variable interest rates, which are subject to change and may dramatically increase the payoff amount of the loan.
3. When do I start paying back my student loans?
You are required to begin paying back federal student loans once you have fallen below a half-enrolled status or have left college entirely. If you have graduated, there is a 6 month grace period. The payback schedule for a private loan usually begins immediately after you have signed the loan papers but each lender has different requirements.
4. What if I can't repay the loans?
Pay close attention to what you are expected to pay back and when! You may qualify for deferment or forbearance if you are unable to make payments on the loan(s). A deferment will simply postpone the payment while a forbearance will temporarily suspend or reduce your payments, given the approval of your lender. Keep in mind this is only allowed under extreme conditions.
If your salary is exceptionally low, you may qualify for an income driven repayment plan where you pay a percentage of your income. This may make your monthly payment lower but I would advise you to consider paying the full amount if you can find the room in your budget to do so. The loan and it's accruing interest will never go away until you have it paid in full.
5. Am I eligible for loan forgiveness programs?
There are various types of loan forgiveness programs that can be reviewed on the government's Federal Student Aid page. You may qualify for one depending on the type of loan you have, your length of employment, the number of payments you have already made, and many other factors.
These programs are very specific to an individual's situation. Don't count on one or the other to completely erase your student debt.
6. I failed to make the scheduled payments on the loans. How will this affect me?
Failure to repay your loans will result in a default status. Here's why you should avoid this at all costs:
- It causes a negative effect on your credit score.
- Your wages can be garnished each month.
A damaged credit score doesn't just affect your ability to finance a home or a car. It can also hurt you ability to sign up for utilities or rent an apartment. You should avoid missing payments or defaulting on your loan at all costs!
7. Is there a penalty for paying the loan in full ahead of schedule?
It's fantastic news if you find yourself making more than the minimum payment and on schedule to pay off the loan early! Fortunately, there are no penalties in doing so with your federal student loans. But you will need to check with your private loan lender to determine if there is a fee.
Now that you've answered these questions you should have a better idea of the basics involved with receiving and paying a student loan. Make sure the expense of acquiring a degree is right for you before you run out and start paying for tuition. Be honest with yourself about the income you can be expected to make once you graduate.
By paying close attention to the different types of student loans you will be able to make an informed decision about the kind you need and the schedule of payments that will be expected. Good luck!
Do you have student loans? What questions do/did you have?
Note: This post is for informational purposes only. Please consult with a professional loan officer before applying for a loan.