Five Questions to Consider Before Taking Out a Student Loan
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Student loans have proven to be a great financial burden. It is estimated that between $900 billion and $1 trillion is owed in student loan debt by Americans according to the United States Federal Reserve, a figure that has been increasing since the 1980s.
Other estimates put the total amount of student debt at about $1.5 trillion. On average, college graduates leave school with over $30,000 in personal student loan debt; while parents might borrow around $35,000 for their kids’ education expenses.It could take decades before these debts are paid off.
According to the Consumer Financial Protection Bureau (CFPB), there are 2.8 million Americans aged over sixty years who still owe money on their student loans adding up to over $65 billion. It is therefore important that any type of educational borrowing should be well evaluated due to its severe consequences on people’s lives. Sometimes important information is hidden deep inside sentences or paragraphs which you may not see if you do not read fine print fully before borrowing your loan. Ensure you get what the agreement entails before going ahead to borrow from them. Here are five questions you should ask yourself prior to getting into a student loan.
1. Are Loans Part of Your Financial Aid Package?
Student loans are often thought as distinct from financial aid by many people wrongly so. In fact, most financial aid packages include scholarships, grants and loans at once.Granting does not imply repayment; however, loans must be repaid.Be sure to understand every detail when reviewing any financial assistance package for terms differentiating between gift money and those that must be returned.
2. When Do You Start Repaying?
Some student loans allow an individual a grace upon completing his or her degree normally six months up to one year where he/ she can stay without having repayments.The term is meant for job hunting.However, some lenders would want quick settlement whether you are employed or not.Before you make any commitment, ensure that you comprehend the conditions of repayment and the grace period for your loan.
3. How Much Do You Need to Borrow?
The critical thing is establishing how much exactly you need to borrow. Financial experts advise against borrowing more than your estimated starting yearly pay.For instance if the entry level salary in your industry is $75,000, try remaining within or below that amount in debts.Borrowing money beyond what one might earn has long term implications which could result in financial instability in future.Look into salaries range related to a particular career of choice and evaluate what amounts can be manageable.
4. Which Type of Loan Are You Taking Out?
In America, there are two types of federal loans: subsidized and unsubsidized. Subsidized loans are for students who get financial help, and the government covers the interest while you are in school as long as you are enrolled at least half-time. Unsubsidized loans have no such requirements; however, they start accruing interest right away.Make sure that you know the type of loan being given including its interest rate and its duration over which it should be repaid.
5. What Happens If You Cannot Repay?
It is very difficult to discharge student debt. When compared with other forms of debt like credit cards or mortgages which can be written off through bankruptcy filing process, student loans cannot easily be discharged by declaring bankruptcy hence the may haunt an individual throughout his /her life.Missing payments mean garnishment of wages plus other penalties.So it is important to understand what will happen if these debts were not settled and take just enough for yourself.Repay them faster to save on interests rates fees as well as worsening your financial position.
Possessing awareness of these matters may help you deal with your student loans successfully without facing long-term financial troubles.
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