Seven Things to be Careful of When Choosing a Student Loan

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There is no question that getting a college education will increase your chances of success in life.  College graduates are said to earn millions more over their lifetimes than non-college graduates.  But it is a sad reality that many young people and their parents cannot afford the ever increasing costs of a college education and the student must take out a student loan.  The student loan program is administered by a government agency, but the loans themselves are issued by ordinary banks and financial institutions, and so just as with any financial transaction, you must be careful about the related issues.

Consider your options

The first thing you should do before you decide to take out a student loan is to make sure you have exhausted all other possibilities.  While you are still in high school, you should work with your guidance counselor and student financial office to learn if you qualify for any scholarships or grants.  Obviously, any funds received from other sources will reduce your total debt obligation for your student loan.

Interest rate

The interest rate is not fixed by the government or your school.  It is fixed by the lending institution.  And, as with most loans, different lenders may have different rates. It is therefore important for you to shop around for the best rate.

You still owe even if you drop out

Many students seem to be under the mistaken notion that if they leave college, either because the course work was too hard, or they just changed their minds and decided to pursue a different career, there loan will not longer exist.  Think very seriously about both enrolling in college and taking out a loan for it if you are not committed to both the work involved and the necessity of a college education.  You still have to pay back the loan if you quit.

The loan continues whether you are working or not

Another misconception is that a student loan is deducted from your salary, so you do not start to pay it back until you are working and if you are not working, payments will be suspended.  Your obligation to pay back the loan continues regardless of your employment status.

It will affect your credit rating

Student loans are loans, regardless of the noble use they are being put to.  If you do not repay a loan, your credit rating will be affected, since you will have an unpaid obligation on your record.  This will affect you if you want to buy a car on credit, or get a mortgage for a home, or in some cases, a lease for an apartment.

It may affect employment

Many employment positions today, especially if you are dealing in a fiduciary role (handling someone else’s money) such as in a bank or a securities firm, require a credit check in addition to a background check.  If you have a poor credit rating due to an outstanding student loan, you may not be eligible for such a position.

Beware of borrowing too much

Just because the bank wants to give you the money doesn’t mean you can take it.  The definition of student expenses has been expanded to such an extent that many lenders are willing to allow you to use the funds for living expenses outside of campus housing, for transportation to classes in the form of a car, etc.  Calculate exactly how much you will need for your education and do not borrow more than is necessary; that debt will be with you a long, long time and the more it is, the longer it will be.

Acquiring a student loan can truly be a great idea especially when you want to go further the horizon by getting into college. Read on to learn about the seven important things that you need to watch out for when choosing a loan at http://www.findermind.com.

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1 Comment

  • You make a really good point about making sure you exhaust all options before considering student loans. It’s unfortunate, but from my experience, high school students are not made aware of well enough about the availability of not only scholarships and grants but also the other options to consider in funding a college education. There is not enough strategy placed into consideration as students make these important early life decisions.

    Great articel!

    Comment by John — February 25, 2012 @ 8:58 am

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