Understanding Your Student Loans Before the Semester Starts

By Rhiannon Winner on August 13, 2017

Student loans can be incredibly scary since this is likely the first time you’ve ever taken out a loan. Since you’ll be expected to pay these back with interest someday, it’s important to understand the sort of commitment you’ve undertaken.

Some loan payments are due as soon as you graduate! Knowing what kind of loan you have and how it works may encourage you to save more, spend less, and potentially work extra hours on campus to avoid confusion and unnecessary anxiety when the time comes to pay them back.

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The first and most important step is to determine if you even need a loan. If you’ve already taken out a loan for the upcoming year, consider researching options for future years so that you might not have to take out another. Ideally, you want to try to pay with as many grants and scholarships as you can. You don’t have to pay either of these options back, so it’s sort of like getting free money!

Generally speaking, grants are given out by the government to students with the most demonstrated financial need. Scholarships can be won by anyone of any economic background, and tend to be awarded by your university (usually for having great grades and SAT scores), or community groups such as nonprofits, businesses, et cetera. If you apply to enough scholarships (which cater to every hobby, academic interest, sport, or school you can imagine), you’re likely to land at least one or two. That can greatly help offset the cost of college. Seek out as many of these sources as you can, and only then turn to loans.

If you’ve already taken out your loan or are planning to take one out, it’s crucial that you know what kind of loan you have (or will have). A loan through the Department of Education’s William D Ford Federal Direct Loan Program is going to vary greatly from other types of loans, such as a private loan you or your parents took out. Research different types of loans for the interest rates, schedule for paying back the loan, and other details you need to know.

If you haven’t yet taken out a student loan, be sure to compare different options before settling on one. In the vast majority of cases, however, getting all of your loans from the government is your best option. They charge lower interest rates than most private loans, and worse, private loans reserve the right to change the interest rate. A fluctuating rate can make it even harder to eventually pay off your loans, since you might end up accruing more in interest than you expected.

So now you’ve taken out your loan and you’re ready for the school year to start. You’re excited for the classes, your new dorm room, and making friends, but you still have some anxiety left over from the loan process. How are you going to pay back that much money? Who wants to start out their life in debt? Isn’t debt a bad thing? Well, yes, some kinds of debt are, but not all. Defaulting on your car payment or not sending in mortgage checks for a couple of months? Those are bad kinds of debt and will hurt your credit (which is three numbers generated by a formula designed to determine the risk of lending you money).

College debt, however, so long as you don’t fail to pay it back on time, can actually improve your credit score! By proving yourself a trustworthy borrower who is capable of consistently paying back the loan on time, your credit score will improve. Improved credit makes it easier to get loans for a future apartment, car, or anything else you might need. So while being saddled with college debt isn’t great, and we’d all much rather get out without owing a dime, it doesn’t have to ruin your adult life.

You took out your loans for this year, so now you don’t have to worry about this mess again until next year, right? Wrong! You’ll have to fill out your FAFSA (Free Application for Federal Student Aid) and other financial forms before the academic year is up. This is a good thing, though. You may have made mistakes in taking out your loan the first time around, and if you know that now, you can avoid making the same mistake in future years.

Ensure that you’re only taking out exactly as much money as you need to cover required costs such as tuition, housing, and a meal plan, and no more. Additionally, depending on your financial situation, you may want to consider graduating early or transferring. If you borrow, for example, $10,000 in Stafford loans to pay for college, remember that you’ll have to pay upwards of $3,000 in interest. If you borrowed a much larger amount, such as $30,000, you could be looking at paying more than $11,000 in interest. The more you borrow, the more you’ll have to pay back. Search for an interest calculator and determine whether or not it’s worth it to borrow as much as you will if you’re attending a particularly expensive school.

In the end, don’t let the stress over student loans ruin the incredible, eye-opening experience of college for you! There’s no way to avoid all of the anxiety borrowing money entails, but as long as you educate yourself on how your specific loan works, you’ll be safe in the knowledge that you know what you’re doing.

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