A Guide to Student Loans: The Dos and Don’ts of Borrowing
Student loans are a necessary evil. I would know. After attending a four-year public university, I proudly walked out with my Bachelors’ degree in English. And over $30,000 in student loan debt.
To some of you, that’s an egregious amount of student debt; to others, my burden is small in comparison. Either way, it’s close to the most recent amount that the average college student is carrying: the class of 2015 graduated with an estimated average of $35,000 in student loan debt.
If you decide to borrow, be sure to borrow wisely. My freshman year, I was frantically trying to find a way to fund my education. Without the proper preparation—the half-assed online “counseling” isn’t very effective, especially when you’re broke and in a hurry—I borrowed whatever Uncle Sam was willing to give me. At the time, I was grateful. Four years later, I’ve learned that I’m in a lot more debt than I need to be.
Without further ado, here are the dos and don’ts of taking out student loans.
DO: Borrow only what you need.
DON’T: Live off your student loan money.
When I say “borrow what you need,” I’m not only talking about the costs of tuition, room and board, and your meal plan. If you need to borrow an extra thousand for textbooks or a laptop, do it. Don’t deprive yourself of money you need for school-related expenses.
However, you shouldn’t take out as much as possible with the intention of having “fun money” throughout the semester. Sure, you’ll feel like a baller on financial aid refund day (an unofficial college holiday), but you won’t be feeling so hot when it’s payback time. The loan money you borrowed so you could treat yo’ self throughout freshman year will come back to bite you—especially if you didn’t have subsidized loans.
DO: Go with subsidized over unsubsidized federal loans.
DON’T: Take out private student loans before considering other options.
Here’s a quick and dirty ranking of student loans. At the very top are subsidized federal loans, because you don’t have to pay interest as long as you are enrolled at least part-time. Unsubsidized federal student loans have the same interest rate as their subsidized counterparts, but they accumulate interest while you’re still in school. Either way, federal loans are always way better than private loans.
When you borrow money from the government, you aren’t required to pay back your loans until you graduate or leave school. Some private loans require you to make payments while you’re enrolled, and all of them accrue interest from the moment you sign the dotted line.
The biggest problem with private loans, though, is the fact that there is no fixed interest rate. The Bipartisan Student Loan Certainty Act of 2013 kept federal loan interest rates from running rampant (thanks, Obama); interest rates change in accordance with the financial markets. The interest rates on federal loans are also really freakin’ low. The 2015-16 loan rates for undergraduate subsidized and unsubsidized federal loans sit at 4.29%.
Your credit score won’t affect federal aid at all, either. Compare that to private loan interest rates, which can reach a ridiculous 18% interest rate and is depending on your credit score.
DO: Consider loan forgiveness programs.
DON’T: Forget about your loans.
It’s easy to forget about student loans while you’re a student, but did you know you can pay down interest even while you’re still taking classes? Even if you’re contributing just a little bit towards interest, it’s better than waiting to learn that your freshman year loans are thousands of dollars higher, thanks to interest.
Once you finish your degree, you may be eligible for some of the awesome federal aid forgiveness programs. Public service employees can have their loans forgiven after 120 monthly loan payments under their chosen repayment plan, and if you have a federal Perkins loan, each year of service can cancel out a portion of your loan. Law enforcement officials, educators, and medical workers are all eligible.
If you join the Peace Corps or the armed forces, you’re also able to benefit from that sweet deal. But just because you’re eligible for loan forgiveness doesn’t mean you can bail out on your monthly payments!
At the end of the day, remember this:
Borrowing money for college is not unheard of, nor should it be entirely discouraged. The cost of attendance at your dream school may be slightly out of reach. Maybe you can’t afford to go to school any other way. Or maybe you partied a little too hard and lost some scholarships. Whatever the reason, there’s no shame in taking out student loans. I have them, your family members have them, and some of your classmates will have them. Don’t let anyone judge you for funding your education.