How to Avoid the Student Loan Trap
Friday May 2, 2008
With college costs increasing faster than inflation, it comes as no surprise that many college students today and those who graduated over the past few years are often bogged down with student loan debt. While financial aid may be needed to get through college, you can plan ahead to make sure you don't get caught taking on more debt than you need to.
Whatever the expenditures are for, if you overspend, you'll over borrow. Unless you're managing all of your money wisely, you may indirectly be mismanaging your student loans, which will impact your lifestyle for years while you work to pay them off.
Whatever the expenditures are for, if you overspend, you'll over borrow. Unless you're managing all of your money wisely, you may indirectly be mismanaging your student loans, which will impact your lifestyle for years while you work to pay them off.
Three Simple Rules for Managing Your Student Loans
- Borrow only what you need, only when you need it - Remember that the amount you borrow is less than what you'll have to repay. By the time you finish paying off your student loans, you'll probably end up paying around 30% more than the amount you borrowed (depending on how many years you take to pay the loans off and at what interest rate). If you don't plan for this, your student loan payments may be much larger than you expected and take a bigger chunk out of your paycheck than you're prepared to pay.
- When calculating how much student loan money you'll need, ask yourself these questions - Can I reduce my expenses (the answer is almost always yes)? Can I work more during the school year without jeopardizing my grades? Can I work more during the summer or find a higher-paying job?
- Use your student loan money to finance your education, not your lifestyle - Many college students honestly believe they are managing their student loans well. They keep the money separate from their other funds and use it only for tuition, books, and fees. In reality, many students who do exactly that are actually not using their student loans wisely. Why? Because when you're in college, unless someone else is footing your entire bill, every dollar you spend unnecessarily will be a dollar you'll have to borrow later, which means another dollar plus interest you'll have to repay. If you can use some of your own money for tuition and books, you won't have to borrow as much.
Comments
Student loans aren’t as scary as many (including this article) would like you to think. As long as you are smart about what you borrow you shouldn’t ever be crushed by loans. Before you borrow make sure to do some math and figure out what your monthly payments will be in the future. Also figure out how much you plan to make with the career you hope to get with your degree. Determine how much of your paycheck you are comfortable paying for student loans and borrow an amount that will yield those payments.
Everyone will tell you that loans are dangerous, but the only danger comes from default. Avoiding default is extremely easy. If you find that you are not making enough to pay back your loans, just call your loan holder. They will be willing to work something out with you, whether it is deferring your loans or temporarily suspending them with a forbearance. You will only default if you blow off your loan and avoid payments for nine months. This should never happen! You have options to avoid default and you should never be afraid to use them.
Student loans are the cheapest money you will ever borrow and the only loan that will be willing to work around your income and personal situation. This is not an excuse to slack on payment, if you can afford to pay your loans back, PAY THEM! Deferment and forbearance will cost your more in the long run. However, if you can’t pay, don’t let student loans run your life. You have the power and you can reduce or eliminate your payments until you can afford them.
The fear of student loans should not prevent you from taking them out. Despite the risks, there are a lot of benefits. You can avoid working while in school, which will result in better grades. You will improve your credit, which result in a cheaper car loan or mortgage later in life. You will also be able to write off the interest paid on student loans until you are earning $65,000 a year. Essentially, student loans are a safe way to supplement income while in school, build strong credit, and pay less in taxes.
Borrow without fear, student loans are not a death trap but a lifeline. As long as you are responsible, you make a student loan the best decision you ever made. Well, besides the decision to get educated in the first place
Student loan consolidation rebate rebates are usually given by a private company when student loans are consolidated equaling more than $20,000. The more student loans consolidation, the higher the student loan consolidation rebate. This is usually a percentage of the principal loan balance that is either applied to the outstanding loan or sent to the borrower as a cash payment. This can be a very attractive offer, especially when in the form of a cash payment to the borrower.
Do not believe anything D has written. It is all lies.
Not paying your student loans back for any reason is a worse crime than rape in over half the states in the US. Let me explain: There is no statute of limitations on three crimes in the US- Treason, Murder, and not paying your student loans back. It never stops, bankruptcy will not get rid of it. They can garnish your salary, reach into your social security, there is almost no place they can’t take money from you. D says, itll all be fine when you’re making 65k a year. What he/she doesn’t say is that if you cant pay your student loans for 2 years, they pretty much double. Also, whats the average amount of time it takes for a recent college grad to find their first full time job? You’re looking at 24 months.
Here is the underlining truth about student loans:
The government guarantees the private loan companies the money. Therefore, if you don’t pay, they win. The government will give them the money. So it is NOT in their interest for you to pay. Lets say you dont pay for a few years and now the loan amount is double. Now lets say you get hit by a truck. When they goto the government to collect, they receive the total amount you owe, not the initial amount you took out. So it is in their interest for you to default, because they CANNOT lose money.
If you cannot pay your student loans, and you want to live a normal life, you have one choice – Flee the country. Max out your cards and GO. Because once they ruin your credit and you default on your loans then you’re really caught in the trap, because now you can’t even get a visa to another country or get a job to pay the money back. And they’re loving it since the longer you carry on your broken life, the more money you owe, and the more money they will collect from the government after you’re dead.
Treat student loans like loans from the mob. Where else can you borrow 40k without any collateral and then have 6 months to start paying it back in full? Or they will ruin your life?
If you take one thing from this, let it be this: They will stop at nothing to destroy your life, your credit, your parents’ credit, simply because they make lots of money doing it.
LOL at can’t get a visa.
Of course you can still get a visa and a passport once you are in default.
I know this for a fact…….
What happens if you have been travelling abroad for 12 years and not paid any loans back?
Hi,
I was wondering if I can get my bank to garnish my minumum payment every month from my paycheck before tax and this way it lowers my tax bracket. Do you know if this can be done. It is a consolidated loan. Thank you?
I have suffered from bipolar all my life. Now I have severe back problems. In 2000, I lost my job, lost my wife went back to my hometown broke except for CC. In that time, my stepdad (who I was close to) died and a couple of months later, my little brother committed suicide. I was completely depressed and went into hiding and haven’t worked in two years. One of my student loans is going into default and I have $50k in student loans in deferment until late 2009 and have 20k in credit cards I can’t pay. I applied for disability, but it’s a very slow process…almost another 2 years to wait. I have no income, no assets, tried to talk to these people with no luck and I recently came across a grade school friend living in South America and wants me to come down. Can I get a passport, forget my bad credit and start over? or will my bad debts keep me from getting a passport. Please let me know and any other information would help a lot.
Desperate, please help!
Hey,OCNPRL: Yes, you can get a passport and leave the country. In South America you will be dealing with different credit agencies, so you will have no credit record instead of bad credit. Also, the new law on student loans takes effect in July, 2009. It states the government cannot collect on income below 1.5X the federal poverty rate. To that, you can add all medical expenses and insurance costs. As a working number, figure income below 20K each year will be immune from garnishment if you stay in the U.S. Income above that will only be garnished at 15 per cent of the after tax amount. Go to South America, live well, come back in six years when all unpaid debts must be removed from your credit record. Only bankruptcies remain for ten. In six years, the government will still be able to collect according to the guidelines above, but they can’t tell anyone you still owe the money (except other government agencies that might not hire you because of that). In six years, your credit record will no longer reflect either the credit card or the defaulted student loans. Enjoy South America!