While loans are beneficial, it is best to understand and analyze them before making a decision.
If you’re heading off to college or university this fall, you’re probably looking at your finances and planning for a loan. While loans are beneficial, it’s best to understand and think through them before making a decision. Needless to say, the process can be a little intimidating. It’s important to look at all the mistakes students make in the process and avoid them. Below are four big student loan mistakes that experts say students should avoid.
1. Not maximizing federal loans
Federal student loans should always be your first choice. Not only do they have lower interest rates than private student loans, but they also have more repayment options. This means that federal loan repayment can be much more flexible compared to other types of loans. “Always start with federal student loans in the student’s name first,” says Angela Colatriano, marketing director at College Ave.
“If you still have a gap to fill, that’s when private student loans could come into play,” via CBS. Additionally, federal loans also do not charge interest while you are in school and may be easier to qualify for since they are not credit-based.
2. Think about the future
It’s important to understand that you can’t just think about the near future and the present. It’s critical to have an idea of what may happen in the future and plan accordingly. “Taking out a student loan, private or federal, will impact a family’s credit and their ability to do other credit-related activities, such as getting or refinancing a mortgage,” says Jack Wang and financial aid advisor at Innovative Advisory Group. “Especially in the case of federal loans, since there’s really no income guarantee. Low-income families can still borrow large sums of money and then not be able to repay the loan when the student graduates,” via CBS.
3. Not paying payments until later
While you don’t need to start paying off your loan, that doesn’t mean you shouldn’t consider paying off the amount as soon as possible. It’s critical to understand that even a small extra payment or occasional large payments can really make a big difference. “When borrowers can afford to pay more on their loans, they should,” says Stacey MacPhetres, senior director of education finance at Bright Horizons.
4. Skipping payments
It goes without saying that skipping payments can lead to a deep debt trap. If you find yourself in a bind, it’s best to contact your lender. “Contact your loan servicer right away to see what options are available,” says Colatriano. “Don’t ignore the problem.” That’s because many lenders try to help borrowers by offering other repayment plans. This way, they’ll allow the borrower to choose the monthly payment based on the salary they currently earn.
Therefore, if you are looking to get a loan, know that nothing can help you more than thorough research and measured steps.
