College is getting ready to start for many students. If you’re a new student, by now you know whether or not you’re going to take out a student loan or not. If you’ve made the decision to get a loan to start college, there are some things you need to know.
Thinking back several years ago, I didn’t really have a clue about the college student loans I decided to get. My dad was doing most of the talking and explaining to me and I was busy thinking about the things college kids think about: sports, girls and uh, studying.
Seriously, it would have helped me to know more about the amount of debt I was accepting at the time. While I did receive a partial scholarship I still had sizeable student loan payments to take care of when I graduated and got a job.
What do you need to know? Well, I came across some information in a recent Forbes article that would have been quite helpful for me, so I thought I would share it with you. Here are three things I found most helpful:
Know How Much You Are Willing To Borrow
This is really important because just like you wouldn’t go out and spend more money you can afford to pay off one month on a credit card, you wouldn’t want to spend more than you can reasonably handle for a student loan. The more student loan, the more you’re going to be weighed down with a limited life after college. Figure out your limit and determine how you’ll pay for the rest.
Know How Much You Are Going To Earn When You Graduate
Knowing how much you’re willing to borrow is going to depend on how much you think you’ll earn when you graduate (or if you don’t graduate). If you’re one of the lucky few and know today what you’re going to do when you graduate, you can determine your earning potential. Even if you don’t know how much you can reasonably earn you may want to speak with a career counselor and get some data around the average salary for a college graduate these days.
Know How Much You Will Pay Each Month
You need to know what your monthly payments are going to be when you graduate. This will help you understand the implications on your budget and way of life. You certainly don’t want to be in a situation where your student loan payments are taking up a large portion of your budget and you don’t have money left for the essentials and some entertainment. Overall, I don’t recommend more than 5% of your net spendable income (income after taxes and tithe) as debt.
Get Perspective On Your Student Loan Debt
Not discussed in the article, but critical is for you to understand God’s perspective on debt:
The rich rule over the poor, and the borrower is servant to the lender. (Proverbs 22:7)
You were bought at a price; do not become slaves of men. (1 Corinthians 7:23)
Remember, you will be obligated to your lender for several years after college. Get a realistic picture of that situation now versus ignoring it until you graduate.
Answering the above questions will help you determine if you’re really ready to go into student loan debt and if so, certainly help you avoid going overboard on the amount you decide to borrow. Perhaps it will help stimulate some thinking about getting a part-time job to help pay your way, or even start out taking some community college class to save money.
College graduates, what do you think students need to know about their student loan debt?
{ 7 comments… read them below or add one }
I’m glad to see this article. I didn’t know where to go when I applied for my student loan. The main thing I learned in my experience is – don’t wait to the last minute and rush into anything. Look around, research, ask questions, and think.
Student loans are no joke! I regret every bit thinking it’s like free money. I should have thought hard about getting so much for my undergraduate. As a matter of fact, most students need to apply as much as possible for scholarship. Either that or work there way through school.
I regret many of my college finance decisions. I was careless with my loan money coming in. I asked for the max, and was pocketing the leftover money after covering the class fees. Back then, 4 years seemed forever away, and I was living in the present only. Next thing I knew I was married with a kid and had to pay back $40,000 on a $30,000 salary. I’m glad to see this article posted because I want kids to learn from others mistakes. My advice: Don’t slack off in classes, work while in college (even if it’s minimum wage), apply for as many scholarships as possible, and, as Jason said, get a realistic picture of [being slave to the lender] now versus ignoring it until you graduate. You will be graduated and living in the “real world” sooner than you think.
There is definitely a cost benefit analysis that people fail to conduct when selecting their majors and how many college degrees they want to earn.
I agree that students should first aim for scholarships, internships and part time jobs while in school before becoming totally dependent on student loans. When I was in school I found that the best route to take with my student loans was to go with government issued student loans, because you don’t have to pay interest until four months after you graduate.
A lot of people are careless with their loans. A decent rule of thumb in my opinion is never to take out loans more than what you expect to earn your first year out of college (and take only government loans).
Good article for every student to read. Its a resource to guide students in making prudent and wise financial decisions as regards student. loans.