Three Rules For Managing Your Student Loans Smartly

One of the most common laments I hear from 20-somethings (and often 30-somethings) is that they wish they had not borrowed so much money for college, had managed their student loans better, and in general had managed their money better while in college. Then they wouldn't be struggling so much after college to make ends meet and pay their student loan obligations. Some of these young adults are worse off financially than they were in college. Here's what they wish they had known then:

Three Rules for Managing Student Loans Smartly

Whatever the expenditures are for, if you overspend, you'll over-borrow. Unless you're managing ALL your money wisely, you may indirectly be mismanaging your student loans, which will impact your lifestyle for years while you pay them off.

1. Borrow Only What You Need, Only When You Need It

   Remember: the amount you borrowed is not the amount you'll have to repay. By the time you finish paying off your student loans, you'll probably end up paying around 30% more (in interest) than the amount you borrowed (depending on how many years you take to pay the loans off). 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.

2. 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?

Keep track of what you owe in student loans and use an online calculator to estimate what your payments will be at today's interest rates (while keeping in mind that rates could continue to go up).

3. 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 could have used some of your own money for tuition and books, you wouldn't have to borrow as much.

For most students, a college education requires sacrifice on the part of both student and parents. Many parents even borrow from their own retirement funds in order to help their student. This is not a good move for the parents, and students should not expect their parents to do this. The student has a much longer time to pay off the loans than the parents have to rebuild their retirement funds.

Tips for Controlling Your Living Expenses

To control your living expenses, minimize expensive trips to the hair salon, designer clothes, electronic gadgets, a "must-have" pair of boots, concert tickets, expensive cars, and expensive recreation. You don't have to totally deprive yourself - just practice moderation.

Go somewhere nearby for spring break instead of flying to a resort and staying at hotels. Follow a spending plan (aka "budget"). Set guidelines for spending in each expense category and track your actual expenses.

Tips for Controlling Your Borrowing

Don't borrow based on what you think you'll be able to earn after graduation. Before student loans were so widespread, college students were frugal by necessity and they graduated with much less debt in proportion to their earnings after graduation.

Before taking out a loan, list all of the expenses you're likely to have that semester and base your loan request on that, not on how much the lender is willing to lend you.

The bottom line is this: control your expenses and limit your borrowing while you're in college and enjoy the fruit of your labors after college instead of slaving to pay back your lenders.