Plan Ahead Before You Borrow for College
Higher education can provide more career options and higher income, but it can also be expensive. If you need to borrow for school, take time to consider your options and strive to keep the loan amount as low as possible. Here are strategies to keep in mind.
- Look into and apply for grants and scholarships first. Start by filling out the Free Application for Federal Student Aid (FAFSA). This form needs to be completed in order to be considered for most types of financial aid.
- Figure out how much you need to borrow, and then work up a budget to make sure you can afford it. Your costs, like tuition, textbooks, housing, food, and transportation, minus income like your savings, family contributions, income from work-study or a job, scholarships and/or grants will help determine how much you’ll need to borrow. It’s important to be as realistic and accurate as possible when figuring out costs, as well as income from a job and the scholarships or grants you might qualify for.
Also, consider the minimum monthly payment (including interest) you will owe after you graduate, and how it compares to your projected earnings. To help you project your future salary in the lines of work you’re considering, look at the U.S. Department of Labor’s statistics on wages in more than 800 occupations. Create a budget of what your financial picture might look like after you graduate---include your future potential income and all potential monthly expenses, like rent and renters’ insurance, car payments and insurance, utilities, a phone plan, groceries, eating out and entertainment. Add you future student loan payment to the budget and see if you can afford the payment. Creating the budget can take time because you’re figuring out costs of things you haven’t had to pay for before. But it’s well worth the time, so that you know what to expect when you graduate.
- Keep track of the total amount you have borrowed and consider reducing it whenever you can. For example, if your loan accrues interest while you are in school, you may be able to make interest payments while still in school, and this can reduce the amount owed later on. You could also repay some of the principal (the amount borrowed) before the repayment period officially begins.
- Consider making extra payments to pay down your loan faster. If you are able to, start by paying the student loans with the highest interest rates. If you have more than one student loan with a bank or loan servicer (the company that collects your payments and administers your loan), tell them that you want to apply any extra payments to reduce the balance of the higher-rate loans.
- Make your loan payments on time to help build a good credit history. To help you stay on schedule, consider having your payments automatically deducted from your bank account or arranging for email or text reminders.
- Make sure your bank or loan servicer has your current contact information so you don’t miss important correspondence, such as a change in a due date.
- Contact your bank or loan servicer immediately if you find you’re having difficulty repaying the loan. Repaying student loans can be challenging, especially during tough economic times. It’s best to contact them early on, instead of waiting until the situation has gotten worse.