Compared to earlier times, there are a lot more students today who understand the importance of higher education and therefore, generally aim for higher-ranked universities and colleges. Since these universities usually demand high fees, in order to avoid financial hurdles students usually turn to education loans. Although a student is able to complete their higher education seamlessly with the help of an education loan, it usually harms them in the future if they don’t choose the option carefully.
To help you make a good decision for yourself we have listed some of the student loan mistakes to avoid. Therefore, make sure that you go through them carefully so that your decision for an education loan does not impact your future negatively.
Table of contents
- Mistakes to Avoid While Applying for a Student Loan
Mistakes to Avoid While Applying for a Student Loan
It is always advisable to go through the terms and conditions when one is applying for any kind of debt. Therefore, while applying for a student loan also you should ensure that you have the utmost clarity about the repayment policy as failing to do so can have severe consequences on your future. We have listed and discussed in detail below some of the student loan mistakes to avoid.
Getting Confused Between Variable Interest Rate and Fixed Rates
Every type of loan levies an interest rate in return for the debt offered to the borrower. The catch here is that every loan does not have the same type of interest rate. There are two types of interest rates – variable and fixed. A variable interest rate fluctuates from time to time wherein it is usually low in the beginning but can go high in future which can lead you to pay more. On the other hand, in the case of a fixed rate, the interest remains throughout the loan tenure. To get clarity on this, make sure you ask your loan provider about how the interest will capitalise over time.
Not Going for Scholarships and Grants
Taking an education loan can make you feel burdened as you will be stressed about repaying it throughout your time in university. There are many scholarships and grants that provide financial aid to students without having to pay anything in return. Students usually make the mistake of going for an education loan first instead of trying for scholarships and grants.
These scholarships and grants usually require a student to have an impressive academic record and should provide an impressive SOP for the same. Therefore, if you are someone who has the chance to get a scholarship then you should apply for it before you start thinking of taking an education loan.
Deferring the Student Loan
Students opting for an education loan usually get a grace period (moratorium period) after they complete their course to first find a job and then start repaying the loan. If for some reason they do not get the job and aren’t in a position of repaying the loan then they have the option of applying for deferring the student loan.
Deferring a student loan is not a good choice as the interest rate will be charged on the deferred period as well which means that will have to pay a hefty amount of interest accumulated. When you get the job, you will be burdened with the EMIs along with an unnecessary interest component.
Not Understanding Repayment Options Clearly
It is quite important that you understand the repayment policy of your education loan from the start. This can also help you save time and money. Make sure that you ask your loan provider about the best option for you which will be suitable for your situation. There are many income-based repayment options available from which you can choose according to your circumstances. You should also stay in contact with your loan provider in order to avoid any default which can hurt your credit score.
Also Read: How to Pay Off Student Loans?
Taking More Debt Than Needed
Education loans can be a great tool to achieve your higher education goals but make sure that you do not borrow money in excess. Try to work part-time to pay off your bills and earn some extra money so that you don’t get burdened with a lot of debt. It is quite simple the less you borrow the less money you have to pay back along with a lesser amount of interest.
Some students forget to do the research required to decide the loan amount which they will be able to afford once they get a job after they complete their program. This research involves looking for career opportunities that will be available after a student completes their course and what will be the salary range that they can expect.
Choosing Private Loans Over Federal Loans
Instead of going for private loans first look for federal loans as they have greater availability, better repayment terms, and are less costly as compared to private loans. Federal loans usually do not depend upon your credit history and offer fixed rates. You should apply for private loans only if your application for federal loans gets rejected or you have reached the limit to take federal loans.
Indulging in Frivolous Spending
Although students generally spend the loan amount sanctioned to them on educational expenses, there is a real temptation present to spend it on unimportant things which can lead to wastage of an important resource – money which is quite essential when pursuing higher education.
You can avoid spending in excess by cutting down on non-essential shopping, vacations, luxuries, etc. All of these types of expenses can result in frivolous spending which you should avoid by practicing self-restraint and thinking about its consequences on your future.
Also Read: How to Manage Money While Studying Abroad?
Mentioned below are some of the tips that you can follow in order to lower your student debt:
– Check if you are eligible for student loan forgiveness program
– Look for consolidating multiple student loans into one payment
– Go for refinancing your student loan at a lower interest rate
– Opt for an income-based repayment plan
People belonging to the age group of 35 to 49 years owe the most amount of student loans.
The USA has the highest student loan debt.
This was everything about student loan mistakes to avoid! To know more about the loan application process, and the best bank accounts for students or international money transfers, subscribe to Fly.Finance or reach out to our experts to help ease your study abroad experience.