21 Jan Don’t Let These 5 Common Student Loan Mistakes Destroy Your Financial Future
What can you do after you have determined your federal and state college financial aid eligibility, applied for scholarships, and still find yourself short of funds needed to attend college? For some students, a student loan can help bridge the financial gap. While grants and scholarships do not have to be repaid, a loan must be paid back with interest.
If you take out a loan, make sure you understand who is making the loan and the loan’s terms and conditions. Student loans can come from the federal government or from private sources such as a financial institution. To avoid financial difficulties in your future, don’t make these common student loan mistakes:
1. Not understanding the difference between subsidized and unsubsidized loans: Under the federal direct loan program, the Department of Education is the lender. Students who demonstrate financial need can qualify for subsidized loan programs. The Federal Perkins Loan Program is available to undergraduates with exceptional financial need. Under this program, the school is lender. Interest rates, amounts available and repayment terms vary based on the loan type.
2. Not taking advantage of PLUS loans: These loans are made to parents of dependent undergraduate students. While they involve an origination fee and different interest rates, they do offer deferment options while the child is in school.
3. Not understanding the difference between federal and private loans: If you still need funds after exhausting your eligibility under the federal loan programs, you may need to search for private loans. These loans are made by a lender such as a bank, credit organization, state agency, or a school. There are differences from federal loans and from lender to lender. Be sure you understand the terms of any private loans.
4. Borrowing too much money: You are allowed to borrow less than your school offers, and should only borrow what you need. Plan on using the money loaned to you only for educational expenses, and not living expenses. Student loans can add up quickly and you may find yourself with a larger amount of debt than expected upon graduation.
5. Failing to understand repayment terms: Understand that your student loans may become due if you drop out or reduce the number of classes you are taking. Upon graduation find out about any deferment or consolidation options. Failure to make payments on student loans will cause an adverse mark on your credit history and could follow you for many years to come.
Learn More About Student Loan Options.
Rules and terms about student loans are constantly being reviewed and updated. Talk to a college financial aid advisor who can help you sort through the options and make the smart money moves for your individual financial situation.
Set up an appointment now for a free financial aid strategy session with College Financial Aid Advisors (CFAA). Also be sure to request your free copy of The Twelve Most helpful College Financial Aid Tips.