The year 2016 saw a whopping student loan debt of $1.26 trillion in the U.S. Around 43.3 million Americans are currently weighed down by these student debts. It is believed that this could explain the recent trend of American students continuing to live with their parents for longer durations. Moving back home is one way of saving money to pay off these massive debts.
So how can students avoid the pitfalls of student loans? While you may not be able to avoid student loans altogether, there are a couple of pointers that you can keep in mind to help minimize loans.
Financing Your Education
One of the first things that you need to do when considering how to pay for college is research the available grants and scholarships. School counselors can help to an extent, and you can also speak to the schools you are interested in, and discuss financial aid and other options available to you.
Even if a scholarship does not pay for everything, you can still take a loan that will be a lot lesser. You can also speak to your family about helping you pay for college. You need to do all this before you even begin to think about taking a loan.
Once you know of all the financial resources available to you and the amount of money you will need for college, you can start scouting for loans. There are both federal loans and private loans available. Federal loans should be your first preference because interest rates are lower and the options are more flexible. Here again, you have the option of subsidized and unsubsidized loans. Ideally, you should be able to pay off the loan you borrow with your first salary.
A couple of things on the good-to-know list:
- You have to start repaying your student loans within six months of leaving college. True story.
- Defaulting on your loans will lower your credit score and you will lose out on federal tax refunds.
- The interest rates for federal student loans are set annually.
- Apart from subsidized and unsubsidized federal student loans, you can also consider Direct PLUS and Federal Perkins loans.
- The government pays the interest in subsidized federal student loans when you are in college.
Managing on a Budget
To make sure that your student loan is not a burden later, you can plan your budget while in college. It should go without saying that avoiding credit card debt is a smart move at any point in your life and especially when you have a loan to pay off.
You can also minimize college expenses in various ways. For instance, there are options like Boundless and Texty that give you access to used textbooks and you can save some moolah there. Another way to avoid mounting interests on your loan is to pay it off while in college. Even a few dollars toward it can save you a lot of trouble later.
Once you are out of college and have a job, it is time to sit down and work out the numbers again. This calls for minimizing your expenses in the first year and until you clear off your loans. Paying off your loan and putting aside money in an emergency fund should be prioritized when planning your budget.
These are a few simple ways to minimize your student loans and to plan your budget that may pay off later.