Managing Student Loans

Student loans are a necessity for many people. Without student loans, many people would not be able to afford an education. As such, student loans are essential for the advancement of the financial and educational goals of certain people. That being said, even though student loans can offer these benefits, if you are not careful you could end up in a serious debt pit from which you will have to struggle for many years in order to get out. Therefore, before you take a student loan, make sure that you analyze all the costs associated with the same.

Student loans are loans given by the government and by private companies to help a college student pay for things like tuition, books, and living expenses. The money comes through the financial aid office of the university that you are attending. Generally, the university will have you do some sort of student loan entrance and exit program. These programs basically tell you that student loan money must be paid back, that you should never borrow more than you need, and that defaulting on a student loan has the same negative effect on your credit as if you defaulted on any other kind of loan.

Even though a university gives you all of this information and the government sets up a table to calculate what your living expenses will be, the majority of students still fall into the student loan trap of borrowing more money than they need. As a result, once the payments on the loan become due, the money troubles begin. This is due to the fact that, although a wonderful thing to possess, a college degree does not immediately get you a $100,000 per year paying job. Thus, if you “max out” your student loans (meaning you have anywhere between $50,000 and $100,000 in student loans) and your first job out of college pays about $50,000 per year, your loan payments may cost you more than you can afford (especially since you may be looking to buy your first home, get married, buy a car, etc.).

In addition to this heavy debt burden, some private loans carry high interest rates depending on your credit. As such, not only will you owe a lot of money upon graduating, but you will also have to pay a lot of interest on top of that amount. Therefore, you may have to pay back double or even triple the amount that you borrowed over the life of loan due to interest payments.

As stated above, many universities require that student loan borrowers attend an entrance and exit counseling program. These programs can take a lot of time. Additionally, the applications that are required for some loans are lengthy at best. Therefore, you have to consider the time commitments that are necessary to obtain a student loan.

The direct costs of student loans are the amount of money that you borrow and the interest rate that attaches to such a balance. Indirect costs include the time involved in obtaining such loans. As such, you should analyze these costs before taking out student loans.