5 Mistakes to Avoid When Taking Out Student Loans | Campus ...

Posted by MReed on Mar 13, 2012 in College Life | 0 comments

Student loans are a great way to pay for college when you are unable to obtain other funding. Student loans are fairly easy to get. This is one of the reasons why so many people use them to pay for their continuing education costs. There are a few mistakes that some people to make when depending on student loans to finance their college education.

Here are 5 mistakes to avoid when taking out student loans. By avoiding these mistakes, you will make your student loan experience less painful on you and your wallet.

Mistake #1

Most students do not know the difference between the two types of student loans available. Although both of these loans are backed by the government, there is one major difference between the two. One type of student loan is a subsidized student loan. The other is an unsubsidized student loan.

A subsidized student loan is based on financial need and there is a specific amount of money that you can borrow each year. This is an interest bearing loan, however while you are enrolled in school the government pays the interest for you. This loan does not require any payments from you until six months after you have graduated from college. A subsidized loan is great for someone who is attending a community college where the overall cost is much less than a university.

An unsubsidized student loan is also based on financial needs however the amount you can borrow is much higher compared to a subsidized loan. This loan is also interest bearing. The biggest difference between this loan and a subsidized loan is that the government does not pay the accruing interest while you are enrolled in school. You are responsible for paying it. Many student loan organizations will let you defer the interest payments until after graduation.

Mistake #2

Although many student loan organizations will allow you to defer interest payments on your unsubsidized student loan until after graduation it is not a good idea to wait. Interest will continue to accrue on your loan while you are in school increasing the overall amount that you owe. By paying the interest payments while in school, which are usually inexpensive compared to a standard loan payment, you will save yourself a lot of stress after graduation.

Mistake #3

Many students and graduates do not have the necessary means to pay their student loan payments after college. Therefore many of them defer their loan payments as long as possible. While this alone is not a bad thing, not paying on the interest while the actual loan payment is in deferment is. For one, the interest that you pay on your student loans is tax deductible. Secondly, not paying the interest will substantially increase the amount of your total student loan that is owed. This is common among the 5 mistakes to avoid when taking out student loans.

Mistake #4

Almost everyone receives an overpayment of student loan money after the school has been paid by the loan company. Most people will keep this overpayment and use it to pay for books and other supplies. While this is okay, it is not always wise especially if the loan is unsubsidized. You can save yourself a lot of stress later by using the refund to pay a portion of your student loan back immediately. This will help reduce the amount of interest that you will owe as well as the size of the loan.

Mistake #5

Often people are enticed by various student loan corporations to take out multiple student loans. Don?t do this. It is never a good idea to take out more than you actually need. By taking out more than what is necessary to attend college you increase the amount you owe. You will also raise your debt to income ratio making your credit rating poor to future creditors. This is one of the worse of the 5 mistakes to avoid when taking out student loans.

In the end student loans are a great concept and necessary for almost anyone seeking a college education. It is important to remember that you can make mistakes when taking out student loans. These mistakes don?t have to occur. By paying close attention to the 5 mistakes to avoid when taking out student loans you can be a successful borrower.

Most of what Sam writes about comes from experience and unfortunately, some of these mistakes were made first-hand. His experiences however have helped him in his blogging and he is also a contributing financial writer for ppiclaims.org.uk.

Source: http://www.campusnonsense.com/5-mistakes-to-avoid-when-taking-out-student-loans/

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