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Most students will need to take out a loan in order to study at the college level. While the options available are generally straightforward, there are a few things about your student loan that might be less obvious when you initially take the step to apply.
To help you to better understand your funding options, here are three things you probably didn’t know about your current – or potential – student loan.
You don’t have to accept the full offer amount
While it may be tempting, taking the full amount of money you’re offered from your lender may not be the smartest decision to make when it comes to managing your money effectively. Accepting a lower loan amount means that you’re less likely to overspend, and besides, it’s always possible to increase the money that you borrow should you ever need to. A bigger loan ultimately means higher interest rates, so it’s best to avoid putting yourself in the position of having to pay back excess interest on an amount of money you didn’t necessarily need.
If you’re unsure about how much of your loan to accept, you may find it helpful to make a budgeting plan. You’ll want to think about more than just your schooling costs – your living expenses are equally crucial to consider. Factor in any other funding sources such as savings or expected salary from a part-time job, for a clearer picture of the amount that you’ll need to borrow.
There are consequences to defaulting on your loans
Student debt is the largest consumer debt in the U.S. second to mortgages. While most students tend to have no problem meeting their repayment obligations, private, non-profit schools do report lower rates of students who have defaulted on their loans.
What most students don’t know is that you can default on both federal and private loans. Although it’s much harder to default on a federal loan (usually you’ll have to have missed nine consecutive payments) private lenders may place a default on your account within three months of missing a payment.
Unfortunately, there are troublesome consequences to defaulting – you may have extra fees added by debt collectors, see your credit score decline, face a reduction in your benefit entitlement, or even find that you’re unable to purchase real estate. There are plenty more negative implications, so it’s important to familiarize yourself with them before accepting any loan amount, however small.
You may be eligible for loan forgiveness
If you’re eligible for loan forgiveness, part of your debt may be eliminated so that you don’t have to pay it back. The eligibility criteria for loan forgiveness is strict – it currently only applies to federal loans and is usually only given to those who work in public service. While it may not be an option for everyone, it is something worth being aware of should you ever find that you’re struggling to make your repayments.
Private lenders may grant loan forgiveness at their discretion, and while it’s not guaranteed, it’s important to note that keeping in regular contact with your lender can land you in good stead. When things go south financially, many people become tempted to skip on their repayment responsibilities without reaching out to their lenders – but by staying in touch and communicating your circumstances, you may find that a private lender rewards your transparency with an offer of some sort of relief program.
Make responsible choices about your finances
Taking out a loan is a serious decision, so it shouldn’t be taken lightly. While your college years might feel like some of the most carefree of your life, staying committed and responsible when it comes to your finances is imperative to avoid trouble down the line.
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