Four Things to Consider Before You Take Out a Student Loan
In the not too distant past, a high school education was enough for a person to find a good job with a future. Today, the high school diploma is more of a prerequisite for a college education than a way to get a job. The cost of obtaining a college degree can be expensive. This is not to dissuade you from doing it, just pointing out the hard reality that unless you’ve got rich relatives or can get a grant or scholarship, you’re going to have a hefty loan balance to pay by the time you’re done.
When you’re trying to plan it out, there are lots of factors besides tuition to consider. Will you live on campus, or off? If off, how far will you have to drive to get to your classes? Then of course there are textbooks and basic supplies. Also bear in mind that if you’re going to go full time, you’ll be hard pressed to do that and work a full time job, so you’ll need to plan your living expenses accordingly.
Even if you plan to go full time, don’t buy into the myth of the “four year degree.” The average college education takes 4.5 to 5 years to complete, at the bachelor degree level. Attending summer school will reduce the time, but probably not save much money because tuition, housing, books, clothing and travel are still factors that have to be considered.
You’ll definitely want to see what grants and scholarships you quality for (if any), but bear in mind that few people get a full ride, so you’ll almost certainly have to supplement that with student loans. Fortunately, the U.S. Department of Education has a wide variety of programs available. Some states also offer financial assistance to residents who attend in- state schools and maintain a certain grade-point average.
The Four Key Considerations before Taking out
A Student Loan
- Determine how much you are going to borrow per year and over your entire college career. Always remember that this is just a rough estimate because you can rely on the fact that tuition will go up while you’re attending, and even if it doesn’t, there are still travel costs that fluctuate, along with the price of gas and textbooks, which always seem to be more expensive than they were the year before. What you’re looking for here is a realistic estimate on what it’s going to cost you, so don’t be conservative about this. Even if you’re not, odds are that the final number you arrive at will be less than the total final cost, but your goal here is to give you a decent ballpark figure. It might be a bit shocking, but the more shocking it is, the more realistic it is likely to be.
- Next check with the Department of Education, the financial-aid office of the college you want to attend, your high school guidance department and some of the online services that offer assistance in securing loans. Remember, the loan is going to be based on family income, but in most cases, it is you and not the family that will be repaying the loan.
- Determine what the loans are going to cost you and how soon after graduation will you have to begin paying. Find out if the interest rate is fixed or variable. Variable rate loans can increase or decrease within a specified range, based on what the overall economy is doing. The rule of thumb here is, the lower the rate the better, and fixed is preferable to variable, assuming you can lock in a low rate. Read all loan documentations carefully and determine if there is any penalty for not finishing school or any reporting requirements as to how the money was spent.
- Finally, you have to decide whether you will be able to pay back the loan under the terms specified in the loan agreement. To do this, you need to have some idea of the salary you will be making upon graduation and landing that first job. Many jobs requiring a degree can have lucrative salaries, but others have low salaries. A person studying music may earn a seat with a major symphony orchestra. Another person majoring in music with equal talent may become a music teacher at a local school. The accounting major may get hired by one of the big firms or be passed over and end up working as an in-house accountant for a small business firm. Therefore, figure a range of possible salaries you could make. What we’re basically talking about here is ROI. Return on Investment. If you’re going to spend that kind of money on your degree, you want to make sure that you’ll be making enough to not only pay the loans off, but to live well in the meantime.
Can You Afford It?
After you’ve waded through all four of the steps above, you come to the moment of truth. The bottom line is, can you afford it and is it worth it in the long run? If yes, go for it, and good luck in your college adventure!
Remember too that once you graduate, if you’ve had to take a number of different loans on, you can probably save yourself real money by looking into a loan consolidation program. These can be a real boon, especially when you’re just starting out after graduation and money is tight, and is definitely something to keep in mind.
