Conquering debt phobia: How to shop smart for student loans
The mere thought of paying student loans sends most college students reeling, but student debt doesn’t have to be a cause for nightmares. With careful planning and research, students can minimize their financial need and find borrowing options that will set them up for success.
Check out these four keys to conquering debt phobia and shopping smart for student loans this summer:
- Apply for scholarships first. One of the best ways to minimize the cost of going to college is by applying for scholarships. Most schools will offer scholarships to students with high grades, those who are involved in sports or performing arts activities and to students that need more financial help. Many communities also offer scholarships through churches, local businesses and community organizations. The chances of winning these scholarships are usually greater because fewer students apply. Don’t pass up the scholarships with smaller awards either – these funds can help cover expenses such as tuition, books, supplies and the cost of living.
- Know your loan lingo. Familiarize yourself with the different kinds of student loans. Federal and state-sponsored student loans generally have lower interest rates than private student loans, so you should seek financial aid from the federal or state government before contacting your personal banker. Private loan interest rates are typically based on the credit risk of the borrower and/or cosigner. Only about five percent of borrowers have high enough credit scores to swing lower interest rates, however, so take advantage of federal and state-sponsored aid as much as possible.
- Don’t bite off more than you can chew. The Consumer Financial Protection Bureau recommends taking out less than your expected starting salary after you graduate. If you expect to earn $40,000 per year in your first job, do everything you can to take out less than $40,000 in loans. In 2016, the average amount of student loan debt for a graduating college senior in the United States was just over $37,000. This calculator will help you determine the upper limit of student loans you should take out based on the salary you will earn with your major.
- Find a loan buddy. Trying to understand the terms and conditions of a student loan can be overwhelming, especially if you don’t have much banking experience. When you start to apply for loans, work with a parent or trusted adult. It can help to have a second set of eyes checking for low interest rates and reasonable terms of repayment. In addition, many private and state-sponsored student loans require a cosigner who pledges to pay back the loan if the borrower does not.
As long as you do your research and take out loans that can be repaid in a timely manner, you will be well prepared for a secure financial future. Student loans are an investment, but once you start earning that first paycheck at the job of your dreams, all the time spent managing your student finances will be worth its weight in gold.