7 Smart Things to Consider Before Taking Out a Student Loan

You’re planning for college, and one question keeps coming up. How will you actually pay for it?

Student loans might seem like the obvious answer. But before you sign anything, pause and think carefully.

You’ll be paying off these loans for decades. Student loan debt can follow you well into your 30s and 40s.

That’s why you need to do your homework first. Here are seven critical things to consider before you borrow a single dollar.

Check Out Other Financing Options First

Loans have to be repaid. Student loans, especially private ones, can’t be discharged in bankruptcy.

You’ll owe that money no matter what happens. Federal loans offer some forgiveness options, but private loans don’t.

Try these five financing options before you consider borrowing:

• Federal need-based aid through FAFSA
• College-specific need-based scholarships and grants
• Merit-based excellence scholarships
• State college financing aid programs
• Part-time work during your studies or work-study programs

Every dollar you secure through these options means less debt later.

Prioritize Federal and Subsidized Loans

Not all student loans work the same way. Federal loans offer much better terms than private ones.

You’ll get lower interest rates with federal loans. They also offer income-based repayment plans and forgiveness options.

Start by filling out your FAFSA to see what federal aid you qualify for. Max out your federal loan capacity before looking elsewhere.

Next, explore subsidized loans. The federal government partially funds these, so the terms are significantly better.

Keep in mind that subsidized loans are need-based. You’ll need to qualify based on your financial situation.

Calculate Exactly How Much You Need to Borrow

Without a clear estimate, you might borrow more than necessary. Extra money feels nice in the moment.

But that money isn’t free. You’ll repay it with interest, often for years.

Calculate your total costs and subtract all other financing sources. Account for these expenses:

• Tuition and fees
• Textbooks and course materials
• Accommodation and utilities
• Transportation costs
• Basic living expenses like groceries

Keep your costs minimal. Borrow only what you absolutely need to cover essential expenses.

If you’re already struggling with student loan debt, our partner Cambridge Credit Counseling can help you create a manageable payment plan.

Remember That Expensive Doesn’t Mean Better

Before you borrow that estimated amount, ask yourself one question. Can you reduce your tuition costs?

In-state tuition costs significantly less than out-of-state rates. The difference can double or triple your total debt.

Consider public or community colleges too. They won’t carry the same prestigious brand as Ivy League schools.

But they can teach you the same skills without the massive price tag. Sometimes tuition costs are inflated purely because of brand prestige.

Your degree matters more than the school name on it. Focus on quality education at a reasonable price.

Look Into College-Bank Partnerships

Some colleges partner with banks to offer better loan terms to students. Your preferred school might have such an arrangement.

These partnerships can provide more favorable interest rates. They might also offer flexible repayment options.

But read the fine print carefully. Better terms aren’t guaranteed just because of a partnership.

Compare these offers against federal and subsidized loans. In most cases, federal loans will still be your best option.

Understand Your Repayment Terms Completely

Before signing any loan agreement, read the fine print thoroughly. Make sure you can answer these questions:

• How long will you be repaying this loan?
• What will your monthly payments be?
• Are payments fixed or variable?
• What’s the interest rate?
• When does interest start accruing?
• Do you repay interest before principal?
• When do payments begin?

Longer repayment periods mean more interest over time. You’ll pay significantly more than you borrowed.

Research starting salaries in your chosen field. You need to know what you’ll realistically earn after graduation.

Figure out how much of your income you can afford to dedicate to loan payments. Be honest with yourself about this number.

Don’t Overestimate Your Future Earning Power

Estimating your future financial situation is challenging at any age. It’s especially difficult when you’re just starting college.

You lack the life experience to make accurate predictions. Many young people overestimate their future earnings.

They also overestimate their degree’s return on investment. Be aware of this common mistake.

Take your initial income estimates and reduce them by 20-30%. Plan for a worst-case scenario instead of the best case.

You’ll be much better off if you prepare for financial challenges. Unexpected expenses always come up after graduation.

Your Step-by-Step Borrowing Checklist

Follow these steps before you take out any student loans:

Before Borrowing

• Secure all other financing options first
• Max out federal and subsidized loans
• Fill out your FAFSA completely

If You Still Need Additional Financing

• Consider less expensive colleges to minimize tuition
• Research college-bank partnerships
• Compare loan options for interest rates and repayment terms
• Look up starting salaries in your desired field
• Be conservative when estimating repayment capabilities
• Plan for unexpected financial challenges

Managing Student Loan Debt After Graduation

Already dealing with student loan debt you can’t manage? You have options.

Start by determining whether you can make a lump-sum payment or need monthly installments. Calculate what you can realistically afford to pay.

You may be able to negotiate with your lenders. Many creditors will accept less than the full amount owed.

Getting any agreement in writing is essential. Never rely on verbal promises from debt collectors.

Our partner Cambridge Credit Counseling specializes in creating affordable payment plans. They can help you reduce your monthly payments and lower your interest rates.

You don’t have to face overwhelming student debt alone. Professional help can make a significant difference in your financial future.