How To Manage Your Student Loans
- There are three cardinal rules to follow with student loans: 1) borrow only what you need, 2) manage your money wisely, and 3) keep track of what you owe. Managing your student loans includes managing all of your money, because if you overspend, you'll have to overborrow. Every dollar wasted or spent carelessly is a dollar you'll borrow later and another dollar plus interest you'll have to repay.
- Use student loans to finance your education, not your lifestyle. You'll be paying them off for a long time, so spend the money on things that are directly related to your education, like tuition, room and board, and books. It doesn't make sense to use this money for basic living expenses like clothes, groceries, and entertainment.
- Remember that the amount you'll have to repay on your student loans will be significantly more than the amount you borrowed because of the interest expense you'll incur. When you think of the amount you've borrowed in student loans, add at least 30 percent to it so you have a realistic number in your head of what you'll really owe.
- For most people, a college education requires sacrifice. You can sacrifice now or you can sacrifice during the years you're repaying your loans. Don't bury your head in the sand when it comes to managing your student loans. Know the exact total and the amount your payments will be, based
on what you've borrowed so far, and do your best to minimize the amount you have to borrow.
- Don't take your parents' ability to contribute financially to your college education for granted. Most parents of college students channel money to their kids at the expense of funding their retirement. You have many years to pay off student loan debt, but your parents have a very limited time to build their retirement nest egg, so don't make their sacrifices greater than necessary. Spending your money wisely will benefit both you and your parents.
- When calculating how much student loan money you need, ask yourself these questions: Can you reduce your expenses? Work more during the school year without jeopardizing your grades? Work more during the summer or find a higher paying job? Have you done your homework on searching for scholarship money? The more money you can earn and the more you can reduce spending, the less you'll have to borrow (and repay).
- Don't assume that you'll get the best deal from a "preferred lender" listed on your college's website. Listing preferred lenders is yet another way that some colleges are making money off students by accepting a kickback or some type of financial consideration when students sign up for loans. These "preferred lender" loans can cost you considerably more than other loans, so be sure to shop around to find the best deal.