students

5 Things You Need to Know Before You Take Out a Student Loan

Gayathri | Friday, December 30, 2016 9:39 AM IST

Going away to college is a very exciting time. Unfortunately not everyone gets to live their dream of going to college because a higher education costs money and it’s a luxury not everyone can afford.

Student loans are a solution that allows you to move forward with your college acceptance even if you don’t have the money saved up. Investing in yourself is always a good idea, but before you take out the student loan ask yourself these five questions to make sure it’s the best option for you.

Can you afford the payments?

Very often college students accept student loans without thinking about the financial responsibility that comes with them. Although it may not be for 4 years, the total amount of the loan will have to be repaid with interest. Ask yourself if you’ll be able to afford the payments after graduation and if you want to have debt waiting for you after you get that diploma.

Is the opportunity cost worth it?

Aka will you make enough money after graduation to justify getting into debt? There is no point in spending $100k on student loans if you’re making a lot less after graduation because then you’ll be in debt forever.

We can never have too much money, but we can have enough — especially in college. If you have enough money to pay for tuition, housing, and other basic costs you may not need a student loan. Of course, the extra money could come in handy but if you don’t need it for essentials then don’t take it. It’s a lot easier to start your life after graduation without the stress of repaying student loans.

Do I have all the details?

A student loan is just like any other financial product: it affects your credit score and it’s a binding contract between you and the lender. That’s why it’s important to fully understand what you’re getting yourself into before signing on the dotted line.

Ask about repayment options, the interest rate, an interest-free grace period, and the amortization term. These factors will help decide if you should take out a student loan or if you should consider alternatives.

Will I spend the money wisely?

If you decide student loans are the best option for your college education my best financial advice is to spend the money wisely. Use it to pay tuition and to buy books and supplies, as well as for housing costs. You may not need the entire amount of your loan right away and that’s O.K. Keep any excess money in a high interest savings account so it earns interest until you need it.

And there you have it! Student loans are costly and shouldn’t be entered into without great thought as to the end goal and the ability to repay. Weigh your options and consider that unless you have the money saved, your student loans will be a very real financial obligation in your future.