Credit Sesame discusses what you should know before taking out a student loan.
The Biden Administration’s announcement that it plans to forgive up to $20,000 per borrower in student loan debt came as a relief to millions of Americans. However, it isn’t the end of the student loan problem.
You may continue to take on debt if you’re still in school. Before you know it, you could return to where you were before your debt was forgiven.
It would be naïve to believe that the government can keep forgiving future student loan debt. This would put a significant strain on the federal budget. It would be so financially unsound that it might endanger the future of the federal student loan program. Also, future administrations may not be as generous at forgiving student loan debt.
The best approach to avoiding future student loan problems is to rely on yourself rather than the government. Borrowing responsibly can help you leave college with less of a financial burden. It can also help you establish a good credit record that gives you better access to financial services in the future.
Here are six things you should know that may help your student loan experience and provide a successful introduction to using credit.
1. What is the graduation rate of the school you plan to attend?
Imagine leaving school with a ton of debt and no degree to show for it. That would be tough. It pays to look carefully at what you’re getting into. Beyond the school’s slick website and campus amenities, investigate what the school can deliver regarding your education.
What percentage of first-year students graduate from the school? How many years does it take to graduate?
Consider those statistics in the context of your qualifications. Are your high school grades and test scores above or below the average of other incoming students at your college? It’s not that you cannot succeed if your academic record is a little below average. It means that you may need to work harder than others to succeed.
As they leave high school, students often focus on getting admitted to college. If you want to avoid a future student loan problem, look further down the road than just getting into a school. Try to assess your chances of leaving that school on time and with a degree.
2. What are the requirements for the career you have in mind?
One of the shady practices of some educational institutions is that they market a program as relating to a particular career, even though a degree in that program isn’t what hiring managers look for in that profession.
To improve the chances that your education can help you get a worthwhile job, it helps to know what qualifications employers look for in that field.
An excellent way to approach this is to work backward. Before you enter a college or trade school, imagine you’re about to graduate from it and are looking for a job. Check out employment listings in your chosen career and see if the degree or certificate from the school you’re thinking of attending would qualify you for the type of job you want.
3. What are the placement and income prospects for that career?
Some professions sound great, but there isn’t much demand for them. In other cases, the pay may not come close to earning enough to repay the loans you took to get your degree.
The Occupational Outlook Handbook from the U.S. Bureau of Labor Statistics is valuable for checking out in advance.
The Occupational Outlook Handbook can give you a sense of the demand for a given profession. It lists how many new jobs are expected to be in that profession over the next ten years and whether the growth rate for that profession is expected to be faster or slower than average.
This handbook also lists the average income for different occupations, so you can see how well that career may pay off. It also lets you research the qualifications required for a given type of job.
4. How does your repayment schedule look?
As you take out loans over your college career, you should get an updated repayment schedule each time. This shows you how much you owe and how much you have to pay monthly.
Compare these amounts with the typical income in the profession you plan to enter. Are student loan payments affordable on that kind of income? Be sure to account for other living expenses, too.
People get in over their heads with student loan debt when they don’t think about repayment until they leave school—the time to figure out how student loan repayments is before you commit to a loan.
5. Is taking out a student loan your only financial aid possibility?
For many students, taking out a student loan is not the only financial aid possibility. It may not even be your best option.
Grants and scholarships are forms of student financial aid that don’t have to be paid back. You should apply for as many of these forms of assistance as you can before you borrow or spend money out of pocket for tuition. Some of these are awarded based on academic or other qualifications, while others are based on need.
You can find out about some financial aid possibilities by filling out the Free Application for Federal Student Aid online. Also, check with your state’s education department to see what aid programs are available.
Finally, talk to the financial aid department of any school you’re considering about grants and scholarships that may be available. The helpfulness of the financial aid department and the amount of aid they can identify for you may be an important consideration in your choice of school.
6. Are you getting a federal or private student loan?
Finally, before taking out a student loan, be clear on whether you are getting a federal or private student loan.
Federal student loan interest rates are often lower because the U.S. government backs the loan. Also, federal student loans have several programs designed to make repayment affordable. Private student loans are generally less flexible.
There’s a good chance that taking out a student loan is your first major financial decision. Financial decisions have far-reaching consequences, so take the time to make decisions you can live with in the years ahead.
If you enjoyed 6 Things You Should Know Before Taking Out a Student Loan you may be interested in:
- 8 Ways to Make the Most of the New Student Loan Debt Relief Program
- How to Build Credit as a Student
- Student Freebies, Hacks and Discounts
Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.
