Loans are good because they are a type of financial aid available to help you meet your educational expenses so you can graduate as soon as possible. Federal educational loans are unique. You can borrow up to set limits with no cosigner, no collateral and no credit check, and the application process is simple and straightforward.
Loans are bad because without realizing it, a student can get thousands, even tens of thousands of dollars in debt before graduating. That can make starting a career hard and far less rewarding. Further, you cannot have these loans canceled if you don’t complete your degree or because you’re having financial difficulties. So, if you’re looking at borrowing, walk lightly. Borrow only what you really need to get through school. Then all that great money you’re planning on making years from now will belong to you instead of the bank!
There are several types of loans available. Make sure you are familiar with the different types and terms before you commit.
How much should I borrow so that I know I can afford to pay it back?
Planning ahead is essential to managing debt. If you plan to borrow each year you are in school, estimate the total amount you will borrow. Then use a sample loan repayment table to calculate how much you will have to pay each month. To decide how much to borrow, as a guide you can use the criteria lenders use when they consider an applicant’s ability to repay. They expect that the total monthly payment for all debts should not exceed 8 percent of your gross monthly salary. So, check on your major as to the average starting salaries seen by recent graduates, estimate what living expenses will be like for you and the difference should be a good estimate of maximum borrowing you will want to stay below.
May I consolidate my payments?
If you’ve borrowed from more than one type of loan program, you may be able to consolidate some of the loans and use one payment plan to repay the loans. Continue reading “Loans Can Be Good Things & Bad Things”