Managing Student Loans

A big problem many students have when applying for and obtaining student loans is that they borrow more money than they need. If you have never borrowed money for college before, you will receive countless hours of loan lectures and warnings before, during, and after obtaining a student loan. If you have borrowed money for college before, then you are well aware of the numerous pamphlets, flyers, and websites that “teach” you about responsible student loan management. Although some of the material is helpful, some of it is too “over-the-top” to be effective. In other words, some of the information presented seems to try to scare you more than educate you about student loans.

Here is the bottom line; most people that enroll in college are over the age of eighteen. Under the law, once a person has reached the age of eighteen, he/she is considered an adult. Therefore, most people that enroll in college are legally considered, adults. As such, you have to start acting like adults and understand the need for student loans. If you want to attend college and cannot afford to pay cash, did not get a scholarship, and/or have no other way to pay for college except by using student loans, then you have to know the “true” cost of attending college before you can decide how much money to borrow.

Colleges set a maximum amount you can borrow (in regard to government loans and some private loans). This number should not be disregarded. This maximum dollar amount is set by the university for two reasons: (1) to give you enough money to be able to pay for college and to be able to live during your time in college; and (2) to prevent you (and thus, ultimately protecting you) from borrowing more than necessary to survive through college. Maybe the word “survive” is a little harsh, however, survival is all you need to accomplish when going to college. When I say “survive” I do not mean living on bread and jam and nothing else. However, I also mean that you will not have enough money to buy a new television or the latest video game system.

When applying for student loans, you need to, as accurately as possible, total up all the costs of attending college (including all unforeseen expense that may occur, such as car repair, unexpected flight home, or some other emergency situation and foreseeable expenses, such as books, food, and supplies) and use this number as your “survival” amount when applying for student loans. If your survival amount is less than the maximum amount of student loans that is allowed to be borrowed, you need to borrow the lesser amount. If, on the other hand, the amount you calculated is more than the maximum amount allowed to be borrowed, you need to revise your expenses and cut out non-necessities.

The point is, you always want to borrow less than the maximum amount allowable. When I say “less,” I mean thousands of dollars, if possible, less than the maximum amount. By minimizing the amount of money that you borrow during your time at college, you will save yourself thousands of dollars in interest and principal. Additionally, you will have more financial freedom to be able to make large purchases, such as a first home or a new car, once you graduate.

Trust me when I tell you that nothing is worse then receiving your first student loan payment. After graduating from college and starting your job, the last thing you want to have to do is pay a couple hundred or even a couple of thousand dollars per month for student loans on top of all your other bills. Take my advice and minimize your loan amounts to help save yourself from this anguish.