When applying for a student loan, there can be a series of mistakes that you can make that can prove to be very costly in the long run. Students can find themselves in lots of debt if they do not choose wisely from the beginning and create a plan to deal with the money that they then owe.
This is a problem across all of America, with the average student debt averaging over $35,000. In order for you to avoid making mistakes that could ruin your finances, this guide has been created to make it as smooth a process as possible. Read on below to avoid these seven common student loan mistakes.
Not Applying for Federal Aid
The first type of loan you should really look into is one from the federal government, which is much more friendly than a private loan. Federal aid is also subject to the changes from different administrations, who may in the future decide to forgive or limit the number of repayments, which can be rather favorable to you. It is also worth looking into whether or not you can apply for grants or scholarships, which can then take out part of the costs that go into a student loan. This is better than applying straightaway for a private loan, which often has higher interest rates and more aggressive repayment plans.
Choosing the Wrong Type of Loan
Choosing the wrong type of loan can have a serious effect on your finances. There are generally four types of loans: the favorable subsidized loan that we mentioned earlier, an unsubsidized loan, which may require you to make payments while still in school, private loans, which can be useful in certain circumstances but may come with higher interest fees, and parent plus loans, which can give you a better deal depending on your parents' credit score. It's highly recommended to think about which loan will work best for you and to discuss this option with your family in order to see what will come at the lowest financial cost in the long run. Picking the wrong loan, could seriously harm you later on.
Not Paying Extra on Your Loans
If you have surplus money each month, it makes sense to use that to pay extra on your loans, as this means you will be able to pay off the entirety of your student debt. This means that eventually, you will have more money to spend on the parts of your life that you love. By doing the opposite, you will find that you will spend a much longer time paying off your student loan, which will only hurt you much more in the future.
Ignoring Their Effect on Your Credit Score
Student loans do affect your credit score, either positively if you pay them off in a timely fashion or negatively if you miss repayments. Having a good credit score is essential in later life if you want to apply for a mortgage or a credit card, take out a loan or buy a car in installments. By being aware of how it can affect your credit score, then you can take better steps to repay the student loan in good time.
Choose Loans With High-Interest Rates
Interest rates are often what make paying back student loans feel positively Sisyphean. Even if you pay off money regularly, you may find that your student loan ends up being the exact same amount due to the extra money incurred by interest payments. This is how national student loan debt has totaled over $1.5 trillion! That's why it's very important to pick a student loan plan that doesn't have such a high-interest rate, so being able to pay it back is actually feasible.
Missing Repayments
Always try and make sure that you pay your loan on time. If you don't, the interest rates might be extended, and you could end up paying nasty fees. They could also be extremely nasty and send debt collectors to make sure you are paying them back. If you find yourself constantly missing repayments and your debt lawsuits require help, it would make sense to contact a law firm that has a proven track record of dealing with these types of problems.
Taking Out More Than You Need
One common mistake people make is taking out loans far bigger than the actual cost of higher education. This means having to pay back money that you ended up not even using. When applying for a loan, make sure that you are only taking money for costs that cover higher education, and then you will only have to pay back the money that you actually needed!
