Be sensible about student debt – here’s how to avoid stressing about it
For most young people starting college, some form of student debt is just part of the process. Unless your parents have saved enough money over the years to fund your entire tuition and living expenses, you will need additional funding.
Finding the Money
Most people will take out a federal student loan, and all students are required to fill out the Free Application for Student Aid form at the start of every year of their studies. The answers you give are then used to calculate your student loan and also determine if you are eligible for any other financial aid.
Making an Informed Decision As well as understanding the different types of loans and financial aid programs available, you also need to research the specifics of the schools you want to attend. Some schools may not offer some loan types or might offer higher or lower grant amounts. You need to know this before accepting your place on a course as there might be a hole in your finances.
A good way to know what money you do and don’t have, and identify any additional money you need, is to look at your acceptance letters and research what financial aid each school offers. Then look at what financial aid is available and what you have in savings or help from your parents, and see if there is a shortfall. If there is, you need to think about how you will raise that money.
Plugging the Gap
Most students will try to make up any gap in their projected expenses by taking part-time employment, as this approach doesn’t involve taking on any additional debt. However, you need to make sure to leave enough time for all of your academic commitments!
Taking out a private loan from a bank or lender is also an option, but be aware that these lenders often charge higher rates of interest and you may have to begin making repayments while you are still at school. This is not possible for many students, who are already using money earned from employment to sustain them. Failing to make payments on a private loan can have serious consequences for your financial future, so exercise caution and make sure you can afford to take out this kind of loan.
Think About the Future
Before you take on student debt you need to understand what your repayment commitments are. Some schools/providers will offer a grace period (where you don’t need to start making repayments as soon as you graduate) and some won’t; if you have an unsubsidized loan and have not been making interest payments, you will have a higher total repayment amount. Think about how much money you can expect to earn on graduation and how much of that salary will be spent on repayments. How much debt can you afford to take on?
If you are struggling to make repayments, you may be able to refinance your loan. Check out Elfi’s loan calculator for information.