A checklist before you take out a student loan

by Grace

From the Wall Street Journal comes 5 Things to Know Before Taking Out a Student Loan

1. Research what aid is available to you—including scholarships, state and federal grants, and then federal loans. Meet with your school’s financial-aid counselor to learn these options. Visit the government’s website. The private website http://www.Finaid.org also has good resources.

2. Know the terms of your loans. What is the interest rate, what is the repayment period, and when precisely will payments begin? More importantly, find out what your expected monthly payment will be upon graduation….

3. Once you take out loans, be aware that this debt will not go away until you pay it. Federal loans are often called “aid,” but they are not grants—they must be repaid. Also, it is extremely difficult to discharge student loans—federal or private—through bankruptcy….

4. Look up information on your institution. Don’t just find out your school’s overall ranking or graduation rate. Also look up its “three-year cohort default rate,” a figure intended to show how many students pay back their loans within three years of graduation. That reflects how many students from that school are finding work and decent pay. Information on your school, including default data, can be found here.

5. Look up the earnings potential of your major. This website has information on different careers, including average salaries. Consider whether your debt load is too high relative to the expected earnings of your chosen field.

Also check out loan forgiveness options.

I’ll add another item to this list.  Be sure to research the most recent federal student loan relief programs that reduce loan payments based on a percentage of income, subsidize interest charges, and forgive loan balances after 25, 20, or 10 years.

Income-Based Repayment Plan (IBR)
“… a repayment plan for the major types of federal student loans that caps your required monthly payment at an amount intended to be affordable based on your income and family size.”

Public Service Loan Forgiveness Program
“Under this program, borrowers may qualify for forgiveness of the remaining balance of their Direct Loans after they have made 120 qualifying payments on those loans while employed full time by certain public service employers.”

Keep in mind that these taxpayer-funded programs are expected to benefit higher-income borrowers the most while offering only marginal assistance to low-income borrowers.

 “If you are high-income and have a lot of debt, this is a huge giveaway.”

And some advice from Glenn Reynolds:

There are a few circumstances where student loans may be justified, but they should be viewed with extreme distrust.

Related:  Not enough borrowers take advantage of Income Based Repayment’s ‘mind-boggling’ generous benefits (Cost of College)

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