Know Before You Borrow: Using Student Loans Responsibly

by on February 13, 2013

What’s the most important part of college prep? Standardized tests like the ACT, the SAT, or Advanced Placement are key. So is learning to do your own laundry. But the most important in the long-term:  a student heading to college must consider the financial implications of doing so.

Few Americans can afford to pay for college outright. For the rest, financial aid comes from a variety of sources: federal and state government, local organizations and your colleges of choice. The process begins when you fill out the Free Application for Federal Student Aid (FAFSA), which enables the federal government to award need-based financial aid. Grants and work-study are available in addition to subsidized and unsubsidized loans.

First, the potential student must determine the actual cost of attendance at each college under consideration. A private school will have a much higher “sticker price” than a public university, but they may offer more scholarships and greater financial aid, which could make the actual cost comparable or even lower than a public school. Most schools provide an estimated cost of attendance, but yours will differ based on your choices of housing, transportation and personal spending habits. Asking yourself simple questions will help you estimate your costs and better prepare for the transition to college. For example, how large is the campus? Can you walk to most of the places you will visit every day, or will you need a bike or car? How will you make trips home to visit and how often? For housing, consider the environment you prefer as well as the cost when you choose between a dorm, an apartment or living at home or with a nearby family member. Some students prefer the community atmosphere and the resources available in a dorm, while others may prefer the privacy of an apartment. Living with relatives can save you money and provide the comforts of home, as long as commuting is possible and affordable. Take care in choosing your meal plan as well; will you eat most of your meals in the cafeteria, eat out or eat in? All these factors affect your actual cost of attendance.

The simplest rule for taking out loans to pay for college is that a student’s total debt should be less than what the student expects to earn during his or her first year working in the desired field. A student seeking a degree that will land a higher paying job like computer science or engineering can afford to take on more debt than a student studying art or elementary education. Students who plan to continue with graduate school need to consider the debt they will accumulate during both phases of their education.

For a more accurate analysis of loan repayment after graduation, students should estimate their monthly payments for the amount of debt they expect to have. FinAid.org has a helpful payment calculator for determining the monthly payment as well as the estimated annual salary needed to repay the loan.

If you have difficulty making your student loan payments after graduation, you have several options to avoid defaulting. If you have private loans, contact your lender immediately. Lenders are willing to work with you if you are honest about your situation and show willingness to work out a payment plan. For federal Stafford and Perkins loans, you can apply for deferment of payments if you are unemployed or experiencing economic hardship. When in deferment interest does not accrue on subsidized loans but does accrue on unsubsidized loans. Deferment is granted for up to one year at a time, and the total deferment available for economic hardship is three years. After that you must begin making payments again or apply for forbearance, which is granted if you are not eligible for deferment or have used your three year total deferment time. Forbearance, like deferment, is for intervals of up to one year and three years in total. In forbearance, interest accrues on both subsidized and unsubsidized loans, but no payments are required. Federal loans also have options for graduated repayment, income-based repayment or partial loan forgiveness if you work in public service.

Another option to consider if you struggle with making your monthly payments is student loan consolidation. Consolidating loans from different lenders can help you with your budgeting and help you stay organized because you combine all payments into one check each month. It also changes a variable rate loan to a fixed rate for the remaining life of the loan and can lower your monthly payment by extending the length of repayment. However, like any loan, extending the repayment period will mean paying more in total, but if it means the difference between defaulting or eventually repaying the loan, paying more in interest is a fair tradeoff. Consolidation often means losing the grace period after graduation, so if you are still in school and want to consolidate, consider how long it may take you to find a job and if losing the grace period is worth the benefits of consolidation.

If you file for bankruptcy, you are still responsible for repaying your student loans. Student loans may be discharged in rare circumstances in the “undue hardship” case; if you have demonstrated good faith efforts to repay the loan but doing so would prevent you from maintaining a minimal standard of living for an extended period of time. Getting student loans discharged this way is very difficult. The decision varies based on a judge’s view of “undue hardship” and primarily occurs in cases of permanent disability.

Student loans, like car loans and home mortgages, can help students go to college who would not otherwise be able to afford it. However, like any other loan, they must be paid back with interest and have consequences for defaulting. The keys to using student loans responsibly are knowing the loan terms, borrowing only as much as you need and having a plan for repayment.

{ 31 comments… read them below or add one }

Purnima February 15, 2013 at 11:12 am

Salutary share.
Taking a foolproof decision prior going for a student loan requires lot of research . Thanks for the share.

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Aayna from gazebo kit February 16, 2013 at 3:30 am

Student loans have become the buzzword these days, with every second student completing his or her education with the aid provided by the student loan. Indeed, like any other loan, student loan is also a responsibility and must be undertaken with great caution. The post aptly hints at this point. The student loan can be repaid through different options. Thanks for sharing this post.

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Donna Kiritharan February 17, 2013 at 9:06 am

Been thinking about going to school in the US but my friend told me about how expensive it would be. Not that my dad can’t afford it, it’s just that I want to put myself through college. But it looks like I’d have to kiss that dream goodbye. LOL. Thanks for the information. Sure learned a lot!
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Joy from microsoft powerpoint 2013 training February 17, 2013 at 7:12 pm

I never had a student loan in my academic life. But I must say that you did an impressive article which is ideal for students to read. It’s all about practicality. I mean, if you know that you can’t afford to get a student loan, then you have to come up with ways in order to pay for it. Remember, it’s college.
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Emilia from buy used guns February 18, 2013 at 4:05 am

And we’re wondering why there are so many uneducated people out there. Simple; no one can afford it. With the high interest rates and expensive tuition you’d be insane to push through with this.

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Veronica from financial services recruitment February 19, 2013 at 1:34 am

Getting a student loan is a big responsibility. You have to keep in mind that you’ll have to pay the loan before or after you graduate, and you may need some extra time to do it. Looking forward to paying the loan when the right time comes and saving up for it is a good start.

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Kelly from Sydney harbour wedding February 19, 2013 at 4:57 am

Before you decide on getting a student loan, try to write down your plans on how to handle the loan very well. Also you have to make a feasible plan B in case your long-term goal to pay your student loan backfires. Thanks for presenting this article!

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Stacey from Landscape design sydney February 19, 2013 at 5:16 am

Planning to get u a student loan is like planning for your future. To achieve goals, you need to understand that there are benefits, consequences, and responsibilities that come with every decision you make.

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Kristine from villa ubud February 19, 2013 at 5:47 am

I didn’t really expect that I’d need to go through all that hassle over student loans. It’s definitely a lot to take in. Better weigh my options.

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Clara from bali huts February 20, 2013 at 4:31 am

My daughter is asking me about students loan and I cant give her the right answers. I never experienced applying for a loan when I was a student.The next time she asks me again, I will let her read this article. I learned a lot. Thanks!

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Sandra February 21, 2013 at 4:22 am

Student loans are definitely a big responsibility. I have a friend who has been working as a marketing head for 3 years and she’s still paying off student loans. It’s always best to know how much you can chew before you bite into anything.

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Lee February 23, 2013 at 1:31 pm

Hi
My sister was lucky she never had to take out a student loan for university my parents paid her tuition fees and she got a job that took up all her spare time. She found it tiring but when she graduated debt free she was so happy. So it can be done.

Great post lee
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Morris February 26, 2013 at 9:44 am

The student loans are way more expensive than what most people think. There were studies that many people who take student loans actually hurt their personal finances long term. Of course it depends on your future job and the subject you are studying, but generally they are not worth it anymore.
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Vianney February 26, 2013 at 7:24 pm

With all the difficulties you’ll meet with student loans, it doesn’t make me wonder why a lot of people do not go to college. I still think higher education should be made available to everyone who wants it. Society needs to understand that better decision making skills come out from informed choices which is brought about by education.

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Arianne February 27, 2013 at 5:06 am

As we get older the we have a lot of responsibilities and paying off our student loans is one of them. Though it may seem like a hassle, it’s the only way we could have afforded our education to begin with.

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Eric Miranda June 3, 2013 at 8:49 pm

The cost of college is increasing faster than inflation these days. It\’s crazy. I have a daughter who just started school and my advice to other parents would be to encourage your kids to go to a public university or even start at a community college. She was fortunate enough to find a couple of opportunities at FindScholarshipMoney.com but others aren\’t so lucky. Collectively, we have to find out what\’s causing the rise in tuition so that college does not become just for the elite!

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Tony Scalder June 19, 2013 at 5:36 am

Anyone can see that the cost of education is continually rising, and anything to offset this will be most welcome with students and their families. Thank you for outlining this opportunity.
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Leni June 29, 2013 at 3:01 pm

Although student loans are a necessity for many people if they want to attend college, the key is to be responsible. When I was in college, I knew many students who would take out way more than they needed, not thinking about the struggle it will be to pay it back. This was a great post!

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Lorenzo July 1, 2013 at 8:52 pm

It really helps to plan ahead by taking available college-level courses in high school. This reduces the overall cost of college. Some high schools even offer advanced placement exams which are accepted by some universities for credit towards your courses.

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Robin Nelson July 3, 2013 at 3:18 am

Yep, when you borrow you must have a fix plan in mind on where you are going to spend it. Hence, to make sure that money will go to the most need item. Also, because sometimes we easily get distracted and spend it to “wants.”
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Adam Garcia July 9, 2013 at 6:22 pm

The nondischargeability of student loans in bankruptcy will likely change in the next 10 years. I recently read that student loan debt exceeds credit card debt in our nation. That recipe for disaster will come to fruition as a generation in their 30’s has defaulted on their loans for 10 years, cannot afford to buy a house, and are looking at six figure debt over the next 20 years. Coupled with the fact that the baby boomers are not saving enough for retirement, a semi-bailout of student loan debt is on the horizon.
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Jackson Tay July 18, 2013 at 11:24 am

Some people didn’t realize that If they file for bankruptcy, they are still responsible for repaying their student loans. This article really remind them of their responsibilities.

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Jane at No Essay Scholarships July 22, 2013 at 3:43 pm

Students loans have literally squashed some of my family’s finances. Trying to get scholarships of ANY kind is very helpful.
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Home Learning August 20, 2013 at 2:59 am

Hey, Thanks for sharing an informative post and helping students in understanding their responsibility towards student loans and what are the requirements and restrictions. Somehow student’s loans are discouraged due to hard rules but if the terms and conditions are favorable then students should apply for loan. The strict policies of student loans have given rise to study from home and no doubt distance education is also a good option for the students.

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Matthew Allen October 22, 2013 at 5:52 am

Like Jane said, student loans can literally squash a family’s finances. There are so many scholarships available these days, and they are so easy to find with the internet – there is no excuse to not have at least part of your college education funded with some free scholarship money.
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Spencer November 7, 2013 at 4:54 pm

This gave a lot of helpful information about student loans. They are huge hassles and there are some things that would reduce the cost of college. Like taking college courses in high school and doing very well on the standardized tests like the ACT will get you scholarships.
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Donald Quixote from Ogden Colleges December 31, 2013 at 11:28 am

I like the information you have in this article, it’s extremely useful and helpful. I personally, have just started my wonderful college experience and have already gotten financial aid and planning on going in to Electronic Engineering, so I might be a little better off. Here’s hoping.

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Harish May 2, 2014 at 3:07 am

Taking loan while being a student is an important decision, which if not taken seriously may have repercussions all throughout life..The terms and conditions and the interest rate parity with those of other credit institutions must be matched before proceeding..A very good article indeed. Thanks for all the insights.

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Jeff May 29, 2014 at 8:15 pm

Thanks for the in depth article. A lot of your suggestions are things that aren’t considered before enrolling, and can end up costing the student a bunch of money their freshman year (until they learn better). High Schools should have money management classes with this as part of the curriculum. This is a great wakeup call for entry into the real world. It’ll get the student thinking about priorities and the long term impact of their spending. Thanks Again. Jeff
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pavan kumar July 22, 2014 at 10:16 pm

This is good for students that are looking for significant amounts of financial aid. As far as ease of getting these loans, students can utilize opportunity to study..Great article driving students to their dreams..
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Evans May 20, 2015 at 3:53 am

Nice article. I can advice before taking loan first budget for it, know how much you need to avoid taking more to waste.. Waste means you will pay extra loan you didn’t use properly. Also look at loan terms.

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