Getting Your First Student Loan? Here's 4 Things You Need To Know
Did you know that in 2019, 69% of college students took out student loans? Additionally, they graduated with an average of $29,900 of debt. With statistics like that, it's evident that student loans are widely used. If you are about to embark on your college journey and you need a student loan, there are some basics things you'll need to know to get started. Here's the first four things you need to know.
1. Borrow What You Need
This concept applies to all loans, but especially student loans. Your goal should be to have a loan amount that you can realistically pay back in a reasonable amount of time. Undergraduates are allowed to borrow up to $12,500 annually and $57,500 total in federal student loans. However, make sure to borrow only what you truly need. A good rule of of thumb is to have your loan payments be around 10% of your anticipated after-tax monthly income. Whenever you get a loan, you never want to get in over your head with your loan payments which is why it is so imporant to stay on track and only borrow what is absolutely necessary.
2. Know What Kind Of Loan To Get
There are two main types of loans: federal and private. For students, it's best to start by getting a federal loan because there are no credit score history requirements to qualify. Additionally, you'll have to decipher whether you want to get an unsubsidized or subsidized federal loan. Unsubsidized loans are federal loans available for students who want help paying for their education as well as related expenses but don't necessarily need it. A subsidized loan is a loan that doesn't accrue interest and is based on financial need. To get a subsidized loan you have to apply and meet certain credentials. Take a look at your current and future financial needs to help you determine which student loan makes the most sense for you.
3. Know Your Interest Rate
Once you know what kind of loan you are going to get, it's critical that you know what interest rate you'll be paying. After all, you won't just be paying off your loan, you'll be paying off your interest and loan fees too. Often times students tend to overlook the importance of their interest rate when in reality it's extremely significant to your loan. The current loan fee for student loans for undergraduates is 1.062%. In addition, you'll also pay interest that accrues daily on your loan. Make sure you do your research on your specific loan terms so that you know exactly what you need to pay.
4. Know What You Can Use Your Loan For
It's important to note that you can only use your student loan for educational expenses. Now, you may be wondering what that entails. You can use your student loan to pay for any expenses related to your education such as clothing, tuition, books, or anything that may directly affect your ability to get your education. However, with that being said, it's important to be wise about what you spend your loan money on. In other words, don't spend your loan money on a new school wardrobe when you really need that money to buy books for the upcoming semester.
Getting a student loan for the first time can be very overwhelming, but with the right tips and tricks it will be more manageable. As long as you are aware of your loan terms and are smart about what you use your loan money for, you will be going in the right financial direction. If you like more guidance on your unique circumstances, consider contacting your school’s Financial Aid office for further assistance.