Higher education is expensive. Tuition and room and board at public universities across the U.S. have increased by 40 percent during the 2011–2012 academic year alone.
Thankfully, there are plenty of options to choose from when it comes to higher education, and with a little careful planning you can choose the right path for you and your pocketbook.
Whether you’re switching careers after decades in your profession, or preparing to finish high school and set out to pursue your dream, you’ll need to consider your financing options.
Read on for four things you should know before taking out a student loan.
Your Credit Score
Most lenders base their decisions based on your credit score, along with a handful of other factors. It helps them determine how much they are willing to lend you, and how likely you’ll be to make your payments on time and in full. You should keep a close eye on your credit score for a number of reasons:
- To make sure it’s accurate and catch any fraud quickly
- To help you monitor your debt
- To realistically plan your borrowing plans
Don’t ever overlook your credit score, and keep a close eye on it as you begin to shop for student loans.
Whether You’ll Have a Co-Signer
In some scenarios, having a trusted family member or friend cosign your loan can help you attain lower interest rates compared to what you’d find if you took out the loan yourself. When someone cosigns a loan with you, they essentially agree to repay it if you fail to do so, making you a more attractive candidate for lenders. If that person has impressive credit history, you may be able to piggyback off them and find great rates.
The most important thing to remember is that you’ll both be responsible for paying the loan, even though it’s essentially your debt. Don’t let them down.
Likely Future Earning Potential
As with any loan, it’s critical that you look at your likely earning potential once it’s time to start paying it back. The more loans you take out now, the higher your payments will be after you graduate. Many students work — either part-time or full-time — while they attend school to reduce the amount of loans they need to take out to pay for their living expenses. Decide what’s best for you according to your earning potential, balanced with the nature of your program and personal priorities.
There are various online MBA programs out there that feature flexible schedules to accommodate working adults. Consider all your options before taking out more loans than you can handle later on.
The Difference Between Forbearance and Deferment
There may be times down the road when you find yourself unable to make your monthly payments for one reason or another. This could be due to financial troubles, personal tragedy, or returning to school. At any rate, it’s important to know what your options are, should you need to take advantage of a forbearance or deferment.
If you find yourself unable to pay the minimum payment on your student loans, first check to see if you qualify for a deferment on any Federal Stafford, Federal Grad PLUS, or Federal Consolidation Loans. If you qualify, the interest could be delayed and no minimum payments will be due for the length of your deferment. You’ll have to meet certain requirements, which could include your income level, or your participation in any federally funded programs such as AmeriCorps, Peace Corps, unemployment, or military service.
Depending on which loan you have, the federal government may pay the interest during this time; otherwise it will continue to accrue.
If you can’t make your minimum monthly payments, but don’t qualify for a deferment, you will likely qualify for a forbearance. During this time you won’t be required to make a monthly payment, though interest will accrue and will ultimately be added to your principal balance, making your future payments higher.
It’s important to go into any student loans with a realistic plan for the future and a clear understanding of your rights and responsibilities. What are your biggest concerns when it comes to financing your education?
Is there anything else you want to know about taking out student loans?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.