24 Mar Student Loan Mistakes That Could Hurt Your Financial Future
Taking out a student loan, whether it is from the federal government or through a private lender, is almost a given part of the college process. It seems like an easy source of money and, in most cases, you don’t have to worry about making payments until after graduation. But, when these loans are combined with revolving credit card debt that builds up during the college years, some graduates quickly find out how difficult it can be starting their post-college life with a large amount of debt. To keep that from happening, be sure to avoid these student loan mistakes that could hurt your financial future.
1. Not Thinking About Each Loan First: In the very old days, if you didn’t have the money for something you didn’t buy it. The advent of credit cards took the thought process out of borrowing. When it comes to student loans, though, it’s important to think about what you are doing. Realize that you are incurring a debt that will have to be repaid, and make sure that fits into your future plans. Plan to work during college breaks and over the summer so that you can earn as much money as possible, and need to borrow less.
2. Borrowing More Than What Is Really Needed: Some students get a student loan and use the money as a sort of piggy bank, instead of restricting those funds to be used only for college-related expenses. Going out for pizza, putting gas in the car, and getting your nails done are not college expenses. With interest accruing over four years, you could end up paying a very high price for what should have been an out-of-pocket expense.
3. Not Understanding Debt Consequences: Most college students are young, and don’t realize the effect debt could have on their lifestyle. Parents or financial advisors need to make these young adults understand that the federal government is quite serious about collecting on student loans. Although there are income-based repayment plans, failure to make any attempt at payment could result in a bad credit rating, garnishment of pay, or loss of any federal income tax refunds. Private lenders can also be very persistent in their efforts to collect on their loans.
4. Overburdening Co-Signers: Asking someone to co-sign a student loan can be tricky. Students may ask an older relative to co-sign in all innocence, not realizing what the consequences of such an action may be. That loan then shows up on the co-signer’s credit report, and may make it difficult for him or her to obtain any other credit. Failure to repay the loan on the student’s part may result in the co-signer being forced to repay loans, often at a time when they have the least amount of financial flexibility.
Student loans can be great, if you know what you are doing. Don’t make these mistakes, and you should be able to avoid repayment problems down the road.