Student Loans

Student Loans: Your Best Friend or Your Worst Enemy?


Student loans can either work for you or against you. The majority of American students will require some type of loan in order to complete their higher education and the good news is that there are a wealth of opportunities to choose from. The troubling fact is that many students do not know how to choose the best option as well as the means by which they can avoid common problems such as late payments and damaged credit scores. Let's quickly look at how a typical student loan functions before moving on to examine some sure-fire tips.


The Principles Behind a Student Loan


Most (if not all) students who require loan will also need what is known as a co-signer. A co-signer essentially takes a portion of the responsibility for the loan. In the event that the student fails to repay the debt, the co-signer will be responsible for the remaining balance. Parents are most often co-signers but even friends and relatives can serve this role. However, they must have decent credit in order to be approved.


Assuming that you graduate with the intended degree, you will generally be provided with a six-month to one-year window to begin repaying the borrowed amount in monthly installments. Please keep in mind that these payments will take into account the initial amount owed as well as the accrued interest. Interest rates can vary and they will impact the total amount that needs to be accounted for in the long run.


Determining How Much You Need


If you are planning on college immediately after high school, it is wise to speak with a student adviser. He or she will be able to provide you with a host of options as well as some basic suggestions. You should also fill out the Free Application for Federal Student Aid (FAFSA). This document will provide you with details in regards to how much you will be able to borrow as well as any subsidies and grants that might be available. It will take into account several variables such as your GPA, the financial status of your family and the possibility of any scholarships. It is always wise to take care of these issues first, as you will subsequently be provided with an extremely clear picture in reference to how much you will need to borrow.


Comparing Providers


There are two main issues to take into account when examining a loan provider:


  • The terms and conditions of the loan.

  • The associated interest rates.


Terms and conditions are obvious concerns, as some lenders are naturally more forgiving than others. Ask about grace periods once you graduate as well as any penalties associated with late payments. See if there are any other strings attached to the loan, as these can represent unexpected surprises in the future.


Interest rates are also very important. These are normally expressed as a percentage in the of APR (annual percentage rates). Higher percentages signify that you will be required to pay more in the long run. Some lenders will offer variable rates while others are associated with fixed payments. There are benefits and drawbacks associated with each, so be sure to speak with the provider in order to better understand which could be the best option.


Common Student Loan Mistakes to Avoid


Out of sight, out of mind. This is by far the most common error that students make. In other words, they are not concerned about their loan; assuming that it will automatically take care of itself. Never forget that the grace period upon graduation will pass by in the blink of an eye. This is why it is a good idea to start saving money in advance so that you can begin to make the payments when they are required.


Secondly, avoid bank-sponsored temptations such as “free” credit cards and other financial vehicles. Not only are these credit cards associated with very high interest rates, but superseding their low maximum balances could begin to damage your credit before you even graduate. Never fall for these tricks, as they are commonly employed by banks across the United States. Remain prudent and above all, plan ahead.


It also needs to be mentioned that you should only request those funds which are necessary as opposed to opting for the maximum amount. This will only cause you to owe more money in the future and it will place you in an untenable financial situation. Never be greedy when it comes to a student loan.


Student loans will help you to land a lucrative job in the future and yet, there are always some common mistakes to avoid. Appreciating how these loans function as well as their basic mechanics is the best way to make sure that you start off in the right direction.

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