Sunday, December 15, 2013

Understanding Student Loans


Student loans, as the Federal Student Aid Office would put it, “are an investment in your future.” The statement that follows explains the correct attitude that students ought to have about it: “You should not be afraid to take out federal student loans, but you should be smart about it.” Unfortunately, many students only hear the first part of the explanation and neglect the second part. They are fearless when it comes to taking out student loans but pay dearly for the ways they manage it.

Many college students depend on loans to get their way through college, conveniently forgetting that there are other ways to spend for higher education. They also have the habit of loaning for more than what they really need. After all, it’s easy to forget about student loans when the due date is still very far away.

This report will give you the lowdown on student loans and steer you towards making wise decisions about this form of credit. We will also give you tips on how you can handle an existing loan now that you are already out of the university and climbing the corporate ladder (hopefully).

Ways to Fund College

Student loans are not the only way to get through college. There are actually many ways to prepare yourself and/or your child to financially spend for a bachelor’s degree. As much as possible, college loans should only be considered as the last resort since these need to be paid back. If you can find ways to meet your educational expenses without having to repay with interest then wouldn’t that be better?

First of all, there are college savings. Coverdell Education Savings Accounts (ESAs) and 529 Savings encourage parents and other well-meaning relatives to save for their child’s or other beneficiary’s college education because of the numerous tax breaks given. These college savings accounts allow money to grow tax-free for as long as the money is used to pay for qualified education expenses. For Coverdell ESAs, the distributions can even be given tax-free for as long as they are used for approved education expenses.  Try asking your parents if they had set up a college savings account for you so you can include this in your college war chest. If you’re a parent yourself, now would be a good time to start putting away money for your little one’s college education through these tax-advantaged accounts.

Second, look for scholarship opportunities. Most, if not all, institutions of higher learning have merit-based and need based scholarships for students. You will have to comply with all the requirements and impress the committee with your qualifications. But if you do get awarded scholarships, it’s virtually a free pass to college. Some even give a modest monthly stipend in addition to the tuition, board and lodging, and books so it’s a way to have extra money, too. The catch is, there are conditions that have to be maintained for the scholarship to be awarded so you have to meet these. Otherwise, your scholarship could get revoked.

Third, find work. You will have a lot of free time when you’re in college and you can make these productive by getting a job. Work will not only help you make ends meet, it also enhances your resume that will make you more valuable to your employers. As much as possible, try to find a part-time job that is related in some way to your course so your work experience will give you an edge over other applicants vying for the same position when you’re job hunting after college.

Before you Apply for a Student Loan

If the above-mentioned ways to fund for college are not available or just not enough, student loans are available. However, make sure that you know the answers to these questions before you accomplish that application form:

  • What kind of student loan are you getting? In the world of credit, there are many different kinds. The same holds true for student loans. You have Stafford, Perkins, PLUS—what have you. It’s important that you get to know the features of each one so you can choose the one that’s best for your needs and circumstances. Researching on these is easier now with the Internet and it should be the first step towards getting a loan. If you know what kind of loan to apply for, it’s also easier to apply.

  • How much do you need and can pay for based on your probably earning potential? See to it that you only borrow what you need and can actually afford to pay for based on your projected earnings when you start working. When we say projected earnings, we’re talking about how much your expected salary is in your first job, provided that you work in the profession you studied for. There are some majors that don’t pay as much and there are others that allow you to earn handsomely. So let’s say the entry-level salary in your field is $40,000 determine how much you can afford to pay for your student loan given your other obligations (e.g. credit card bills, food, utilities, etc.).

  • What are the terms for your loan? Be sure to ask how much you will be paying for a particular loan, what the interest rate is, and how long the term is. Remember, a student loan is debt and debt can make you lose opportunities for saving and investing. The lesson? Strive to pay off your loan as early as possible.

Check out www.adamscapgroup.com for more Information on How to Manage Your Debt.

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