4 student loan mistakes to avoid for smarter financial planning
If you are somebody who will be attending university or college this fall, then you must be looking at your finances and planning a loan. While loans are beneficial, it's best to understand and analyze them before making a decision. Needless to say, the process can be a bit intimidating. It's important to take a look at all the mistakes that students make in the process and avoid them. Here are four big student loan mistakes experts say students need to avoid.
1. Not Maxing Out Federal Loans
Federal student loan should always be your first choice. Not only does it come with lower interest rates than private student loans, it also has more repayment options. This means that paying back federal loans may be way more flexible compared to other kinds of loans. "Always start with federal student loans in the student's name first," says Angela Colatriano, chief marketing officer at College Ave.
"If you still have a gap to cover, that's when private student loans could come into play," via CBS. Moreover, Federal loans also don't charge interest while you're in school, and they can be easier to qualify for as they're not based on credit.
2. Thinking Ahead in Time
It's important to understand that you cannot only think about the near future and the present. Getting an idea of what may happen in the future and planning accordingly is crucial. "Getting a student loan, private or federal, will impact the family's credit and their ability to do other credit-related activities, such as obtaining or refinancing a mortgage," says Jack Wang and financial aid advisor at Innovative Advisory Group. "Especially in the case of federal loans, since there's really no income underwriting. Families with low incomes can still borrow huge sums and then not be able to repay the loan when the student graduates," via CBS.
3. Not Paying Payments Until Later
While you don't need to start repaying your loan, it doesn't mean you shouldn't consider paying back the amount as soon as possible. It's crucial to understand that even a bit of extra payment or occasional large payments can really make a huge difference. "When borrowers can pay extra on their loans, they should do so," says Stacey MacPhetres, senior director of education finance at Bright Horizons.
4. Skipping Payments
This goes without saying that skipping repayments can lead to a deep debt trap. If you do find yourself in a pickle, it's best to reach out to the lender. "Immediately reach out to your loan servicer to see what options are available," Colatriano says. "Don't ignore the issue." This is because many lenders do try and help the borrowers by offering them other repayment plans. This way they will let the borrower choose the monthly payment based on the salary they are currently earning.
So, if you are looking to take a loan, know that nothing can help you more than thorough research and measured steps.