Book credit

3 Reasons Why You Shouldn’t Borrow Student Loans Ranger student loan

If you’re preparing to apply to college and don’t have the funds to pay for your full education, you might think that taking out student loans is a necessary evil.

Class of 2017 college graduates who took out student loans borrowed nearly $ 30,000 on average, according to data reported by schools to US News in an annual survey. Total student debt in the United States has now reached $ 1.46 trillion, and that number continues to grow.

But luckily, you don’t have to be a part of this statistic, as there are plenty of alternatives to borrowing money. Here are three reasons why taking out student loans to pay for your education is a bad idea – and what you can do instead.

You will have to pay interest. One of the worst things about student loans is the fact that you’ll always be paying more than what you originally borrowed, thanks to interest. According to a 2017 New America study, the average interest rate on all student loans is 5.8%, but that can vary depending on the type of loan you take out.

With private student loans, interest can vary depending on your credit rating or that of your co-signer and other factors. Federal student loans, on the other hand, have fixed interest rates set by the government. The US Department of Education adjusts interest rates on new federal direct loans annually; the new rates come into effect every July 1 and are fixed for the term of the loan.

While federal student loan interest rates will drop soon, keep in mind that since they fluctuate every year for new loans, it’s not something you have any control over. And while you should exhaust all available federal loans, which come with more flexible repayment options, before considering private loans, remember that you will always end up paying more than you originally borrowed. .

Delay in repaying student loans can lead to defaults and defaults. After you graduate from college, you might find yourself living on a modest income. If you have student loan debt on top of that, it might be a bit difficult to make those monthly payments.

Unfortunately, if you don’t make your payment on time, then your loan becomes delinquent. There is usually a 15-day grace period before borrowers face late fees.

If your loan is more than 90 days past due, your loan officer will report it to the credit bureaus and your credit score will go down.

If the loan is still in arrears after 270 days, then it is in default.

Once your loan is in default, the consequences are many, including the loss of eligibility for additional federal student assistance. Your salary will be garnished, which means your employer may be required to withhold part of your salary and send it to the loan holder to repay the loan. Your lender could sue you. Plus, it can take years for your credit rating to be restored.

Student loans can hurt your debt ratio. Your debt-to-income ratio is, in appearance, the percentage of debt you owe over your income. So the more your income is spent on debt repayment, the higher your debt-to-income ratio will be.

Ideally, this ratio should be less than 36%. If it’s much higher, it could affect your ability to get another loan later. For example, when applying for a home loan, the debt-to-income ratio is one of the main factors that determine eligibility.

So it’s probably not surprising that because of student debt, many recent graduates have ended up delaying important life decisions, like buying a house or a car, getting married, or saving for retirement.

But believe it or not, you don’t have to go into debt to go to college. Here are some alternatives you might want to consider before taking out a student loan.

Apply for a scholarship or grant. The government provides grants based on financial need. And normally that money is yours, which means you don’t have to worry about paying it back like you would with a student loan.

Like a grant, a scholarship does not have to be repaid either. But unlike a grant, eligibility for a scholarship is often based on academic merit rather than financial need. Therefore, if your GPA drops, you could lose your scholarship.

You can get a scholarship through the school you are applying to or through another organization, such as a private company, individual, non-profit organization, religious group, or social organization.

Find out about crowdfunding. With crowdfunding, you can ask family members, friends, parents’ friends, and others to contribute to your college fund.

First decide how much money you want to raise. You can use a crowdfunding platform such as GoFundMe or Indiegogo. Set up a campaign with an honest story about why you need funds. Share your campaign on social media and with your friends and family. If you can get input from a small group of people, it could mean cutting textbook costs or getting help with tuition fees, for example.

Work while you study. Through the federal work-study program, universities offer part-time jobs to students in financial need. Keep in mind, however, that even if you are granted a work-study program, you are not guaranteed a position and you may still have to apply and find a job on your own.

Student loan debt is not a burden you want to have on your shoulders after you graduate. If you have to take out a student loan, at least try to make sure the loan doesn’t exceed your annual salary. So if you expect to make $ 40,000 out of college, depending on your specialty, try to make sure your student loans are $ 40,000 or less.

Do what you can to minimize your student loan debt, and in the future, you’ll be less stressed and be able to spend more money on the things you choose.

Tags : interest ratesunited states
Margarita W. Wilson

The author Margarita W. Wilson