Borrowing for school is a pretty common way to pay for college. But doing your homework before borrowing? Not so common.
“Most students don’t do their homework; they don’t understand that a loan is money that needs to be repaid,” says Arnold Woods, Jr., director of student financial aid at Grinnell College (grinnell.edu) in Grinnell, Iowa.
Why bother?
“The decisions you make regarding student loans when you are 18 years old will have a very direct and real impact on decisions you’ll make years after college,” says Eric Addington, associate director of financial aid at Augsburg College (augsburg.edu) in Minneapolis. “They will determine what kind of job you have, what kind of housing you have, what kind of car you drive, etc.”
Follow these tips to be a successful student borrower.
Do the research
Start by checking out the state of your family’s finances. Know how much financial aid you will need from outside sources.
Unfortunately, scholarships and grants form the smaller chunk of most financial aid pies.
Most financial aid is offered in the form of loans, which is money you need to repay with interest.
Don’t be afraid to call a college
“High school seniors should be in contact with the admission and financial aid offices at the colleges they are interested in,” says Vincent C. Amoroso, director of student financial services at Johns Hopkins University (jhu.edu) in Baltimore.
Do the math
When you start comparing the different award letters from the colleges you applied to, figure out what your loan amount will mean after graduation.
Your future earning potential should be one of the key factors in deciding the size of your loan. Experts recommend keeping your monthly payments to less than 10 percent of your monthly income.
A good rule of thumb is to limit the total you borrow to a maximum of how much you expect to earn in your first year after graduation.
Don’t borrow more than necessary
Once you’re out of college and start working, you’ll have other financial obligations in addition to repaying your loans.
It’s then that you’ll realize the full significance of keeping your debt load low.
“The temptation to borrow more rather than less is always present,” Amoroso says. “Spend and borrow less money while in school so that you have more in the future.’
Borrow only as much as you need to cover essential costs, such as tuition and fees, meals, housing, books, etc.
Sacrifice a little, save a lot
Make it a game in college to go into as little debt as possible. Cut down on your unnecessary expenses, and shun using credit cards. In the summer, don’t waste time at the mall. Instead, get a job.
“Budgeting will also lead to more successful personal finance after college,” Addington says. “A little personal sacrifice for four years will lead to less borrowing and more personal investment in your education.”
Be an early bird
To make sure you catch the juiciest financial aid offers, start the search for scholarships and grants at least a year in advance.
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