Learning Isn’t Cheap. How to Avoid Learning a Hard Lesson:
A wise person will value education. A successful person will have an education. And a smart person will pay for it. Not everyone is lucky enough to get a free ride through college. Most students take out student loans (in their name) to pay for their education.
Federal law allows for the deferment of loan payments while a person is still a full time student. That means that student loans are one of the rare things in life where you don’t have to think much about them for a few years. But once you graduate and once you are really on your own, lenders are more than happy to congratulate you on your new diploma by reminding how they helped you get it.
The federal government doesn’t like it when the Stafford Loan it gave to you four years ago gets put in the closet with your fraternity paddle and old beer keg. The US Department of Education reported that in the early 1990’s the default rate on student loans was a whopping 22.4 percent. Today, that rate is down to a record 5.4. This doesn’t mean that there aren’t still plenty of people in hot water. With more people going to college and almost a quarter of students in the 90’s having yet paid their debt, the number of people risking default on their student loans remains high.
There are ways that students and families can plan ahead so that ten years down the road Uncle Sam doesn’t want his education back. And don’t look for bankruptcy to help you. Since 1998, student loans have been exempt from most bankruptcy protection.
First, it’s important to understand that implications of loan defaulting.
Consequences can include:
- Becoming ineligible to receive future financial aid. That masters you wanted… you’re on your own. And if you have a certain type of student loan, you can be denied funds in the middle of your college career.
- Bad credit ratings right out of college. Not good for those who want a new apartment and new car in a new city for their new job.
- Court judgments and garnishments against you. Think taxes are bad? Wait until a court gives the bank a go at your paycheck.
It’s important to plan ahead. That’s the key. Often times a bank will give you all the money you want for college, but that isn’t always the most financially sound decision. You must be reasonable how your career plans will affect you ability to pay off loans. Consider what kind of support and financial commitments you have from family.
BEFORE signing on the dotted line, consider the following:
- Is the school you are going to reasonable for your ability to pay off the loans in the future? Don’t plan on having a killer job that will easily take care of you. Not everyone can afford Yale outright. Be realistic.
- Don’t take out a loan just because you can. Actively seek scholarships, grants, and need based financial aid that you don’t have to pay back. Make it a goal to only take out in loans what you absolutely can’t afford to fund in other ways. The less you borrow, the less you owe back.
DURING your school career:
- Pay off as much as you can during school when there is no interest. Many schools offer on-campus jobs that pay decently. If you can possibly do it, answer phone for the dean or be an usher for theater plays. Paying off your loan when you don’t’ have to will make the bank more likely to work with you if you get in trouble in the future.
- Don’t forget that scholarships are available for students currently in college. Stay on the ball in finding innovative ways to help pay for you education. See you financial advisor. There are literally millions of dollars in grants that go unclaimed every year. They’re yours for the taking.
- If you decide to leave school for some reason before you finish, make sure that school gives any unused dollars back to the bank. Keep in mind that if you drop out without a reason qualifying you for deferment, you are expected to begin paying on your loan.
AFTER you graduate:
- Start paying on your student loans immediately. Building a good payment history will not only build your credit, but also make the bank more willing to work with you if you need help.
- If you do need help, talk to the bank handling your loan. They would much rather give you three months off without penalty and waive a few fees then have to take you to court and lose all their money.
There are certain things that are important to know that qualify you for loan payment deferment, meaning you don’t have to pay on your loan during your deferment periods. If you enlist in the military, become a parent, become temporarily completely disabled, or if you are unemployed you are likely eligible for loan deferment. Banks aren’t going to go out of their way to find a reason for you not to have to make payments. It is up to you to report a situation that qualifies you for loan deferment.
An education opens your eyes to the world. Don’t put a blindfold on when it comes to your student loans. Managing your student loans can be complex, but it is important that you satisfy what you borrow. Take these important steps to ensure that you handle you obligations and get to reap the benefits of a great education.
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