A Student Loan is designed to help students pay for college tuition, books, and living expenses. It differs from other types of loans in that the interest rate is substantially lower and the repayment schedule is deferred while the student is still in school. The 3 major types of student loans are Direct Loans such as Stafford or Perkens, Parent Loans (plus Loan), and Private Student Loans (sallie Mae).
Student loans are a great way to pay for school. However, if you don’t find a job right out of college, the loan payments will still come due and not even bankruptsy can get you out of this monthly bill. I told you in a previous blog that student loans can be dangerous if you take a lot money and the average starting salary is low. Check out this loan calculator to find out how much you should take in loans based on your projected income. If you put in $40,000 for 20 years at 6.8%, you will have to earn a salary of $36,000/year to pay it off, assuming 10% of your income is going to be used to pay on this loan. I want to re-emphasize that this will be a $300/month burden for 20 years.
Now, I realize when your in school, paying on your loans is the last thing you want to think about but that should not be the case. Nobody gets rich being in debt. Have a plan. Don’t take the money and then decide what your going to do for the rest of your life. If you take the money and never finish school, you will still be forced to pay that money back. DEBT SUCKS, especially if you have nothing to show for it!
When you finally graduate, I highly recommend you consolidate all your student loans into one consolidation loan. It often lowers your interest rate, thus lowering you monthly bill and it sometimes offers more flexible terms. My loan, for example, started me off paying $120/year and then increases every 2 years. So by the time I finish paying it off in 20 years, I will be paying around $380/month. That is kind of cool, because I will be at my peak income by that time and making that $380/month payment will be easier.
Remember, always go for scholarships and grants. Get as much money of those as you can. Search for them, there are scholarships and grants everywhere!!!!!
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