The Five Worst Student Loan Mistakes You Can Make
1. Spending Loan Money on Wants, Not Needs
What are you spending your loan money on? If you're using loan money to pay your tuition or your room and board, that may make sense. Using loan money to pay for an education that you will have forever can be good debt. However, if you are spending your loan money on a new IPhone, concert tickets, takeout or on spring break, that is definitely NOT good debt.
Be sure you are only spending your money on your true NEEDS, not your wants! Making those tough decisions today will allow you much more flexibility in the future when it is time to repay your student loans. Live like a college student now so you don't have to live like one later!
2. Spending Every Loan Dollar You Get
If the school offers you a loan, you should borrow the full amount, correct? Wrong!
Before borrowing student loans, put together a budget and only borrow what you need to survive. If you borrow more than you NEED, you might be tempted to spend it on things that you can live without. You can even return loan money part way through the school year if you find you have more than you need. Every little bit you do not borrow now is money that you won't have to repay when you leave school.
3. Taking On Too Much Debt
Are you borrowing student loans without worrying about how you will repay them? Do you believe that your future salary will be more than enough to repay your loans? It is important to determine what your future salary might actually be. Visit www.careerinfonet.org to get an idea of how much your desired job pays.
Experts recommend that your student loan payment be no more than 8% of your expected salary. Check out the salary/debt wizard at www.famemaine.com to get an idea of what level of debt looks to be affordable for you. If your loan payments look to be too high, reduce the amount you are borrowing either by reducing your expenses or by earning more income.
4. Missing Payments
Some student loan borrowers have difficulty making their student loan payments on time. The good news with federal student loans is that there are numerous options available when financial times are tough. The most important thing to remember is that you cannot stick your head in the sand, but instead, need to deal with it!
Call your lender and ask what your repayment options are. Federal student loans have an option where you can make payments based on your actual income or even delay payments for a period of time. However, you must contact your lender to select the option that will work best for you!
5. Defaulting on Your Loan
If you get into trouble with your loan and do not make a payment, or payment arrangements, for more than 270 days, your loan will default. Defaulting on a federal student loan will negatively impact your financial life for years to come. The federal government can keep your income tax return or even garnish your wages to repay the loan and collection costs.
Additionally, future employers can deny your employment, lenders can refuse to loan you money and landlords can even refuse to rent to you. And, if you ever want to go back to school, you will be ineligible for any additional federal financial aid, including grants.
This doesn't have to happen, though, as there are numerous options available IF you contact your lender to discuss them. No one, including your lender, wants you to default. If you are in trouble and don't know where to turn, contact us at FAME and we will do whatever we can to assist you.
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