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Financial Aid: Borrowing Only What You Need

Financial Aid: Borrowing Only What You Need

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financial-aidBy Shalena Gonzales
Financial Aid Specialist, American Public University

“Student loan debt continues to be a big problem for college graduates, their families and the economy, including this wrinkle: Students may take on so much college debt in pursuit of better jobs that they actually may drive away good employers,” The Street reports.

Student loans are one of the most common financial situations that college students deal with. It is very unlikely for students to pay for their degree out of pocket; therefore student loans will always be there to assist with college costs. However when receiving student loans it is important to borrow smart and do not over borrow.

There are a few things that you must be aware of before receiving student loans, whether it be Federal or private student loans.  It is important not to over borrow as this may put you further in debt.  Here are a few signs and things to watch when it comes to over borrowing student loans.

Here are a few steps that can help prevent you from borrowing more than you need:

Step 1: Determine annual costs to attend the college of your choice

  • Consider the net price of your education when evaluating how much you need to borrow.

Step 2: Research and apply for gifted aid

  • Take advantage of money that does not have to be paid back, such as scholarships and grants to assist with your school costs.

Step 3: Review current financial resources

  • Also consider outside financial sources such as savings, income, and contributions from your family.

Step 4: Calculate amount “needed” to borrow

  • Borrow only what is needed. Take into account that the cost of borrowing greatly increases over time. For example, every $100 you spend using loans now will cost about $200 by the time you pay off your loan.

Step 5: Compare Federal and Private loans

  • When considering student loans compare federal and private loans to see which loan option better fits your needs.

Step 6: Think about your future

  • Factor your college loans into your future debt. A good rule of thumb is to not borrow more for your entire education than your expected starting salary after you graduate.
  • According to an August study by Fidelity Investments: 70% of the Class of 2013 is graduating with debt, averaging $35,200.  While 59% report they chose a specific major in hopes of securing a higher-paying job. One-half say paying off their student loan debt is now their top financial goal. The study revealed 39% would have made different choices related to college planning had they understood the total cost of college.

 Overall student loans are there to assist you in paying for your education. Receiving a higher education is a great personal achievement, however you want to enjoy the benefits of this education and not dread it due to the loans you must repay after graduation. Research has been completed to show how borrowing more than what you need can negatively affect you after graduation. A report from the public policy group Demos says about half of U.S. companies check a potential employee’s credit before making a job offer — and about one in seven job applicants are turned down for a job based on a ‘blemished’ credit score. College grads that fall behind on student loan payments, then, flirt with career disaster. According to the credit reporting agency FICO, a college loan borrower who falls behind on payments can expect a credit score decline of 100 points — a drop that could well prove problematic in landing that post-college dream job.

More information on how to borrow smart can be found at FinAid | Loans | Credit Crisis Tips for Students and Families.

Report on student loan debt found at Student Trap: So Much Loan Debt Companies Won’t Hire You – TheStreet.

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