Student loans are something not a lot of people understand. When you’re in college, all you know is that you should take these out to pay your tuition. However, there is a more long term effect of taking out student loans than most people realize.
In the United States, there are 44 million borrowers that together own around $1.5 trillion dollars. The graduating class of 2016 had an average of $37,172 dollars of debt (Forbes).
Don’t just take out a student loan to take one out. You should know the consequences of taking out a student loan. Here is how to know if you should take out student loans.
Will your salary be high paying?
Have you ever tried to pay back a loan on a small salary? If not, then you need to think twice about taking out student loans. When you’re living on a small salary, it’s going to be hard to pay back loans, let alone loans with high interest rates. Keep in mind that a higher salary can allow you to make bigger payments towards your loans.
Do you plan on taking out private loans?
If you can, avoid taking out a private student loan at all costs. Private student loans tend to be higher in interest and there are not a lot of payment options. Instead, you will be stuck paying a high monthly payment you cannot afford. If you’re going to take out student loans, always go for the federal loans, these give you more repayment options. For example, income based repayment calculates your payment based off your income.
Can you pay off your student loans quickly?
For a lot of students, they don’t think of the consequences of taking out a big loan. Do you really want to pay on a $50,000 loan the rest of your life? Unless, you can pay off your student loans quickly, they aren’t for you. Student loans can haunt you financially, for the rest of your life. Student loans may not be for you if you can’t pay them off ASAP, right after graduation or even during your time in school.
Do you plan on working in your field?
This one is going to be hard to hear. However, a lot of people go to school and don’t even work in their field. This can be bad for a few reasons. Don’t go to college if you aren’t 100% sold on what you’re going for. So many people go to college, rack up debt, and then don’t even use their degrees. If you’re going to take out a student loan, at least be 100% sold on doing what you’re going to school for. Don’t go to college, just to get a degree. This isn’t 1999 anymore.
Do you have help paying them off?
Some students are lucky and have help paying off their student loans. Are you one of them? If you are taking out the loan on your own, without any help, don’t do it. Leaving college with $50,000-$60,000 of debt will ruin you financially. Interest rates on student loans are so high, you are stuck paying the interest forever. Now, if you have help paying them off, then this is a different story!
Do you have the right credit to take out a student loan?
No one is going to give you a student loan if you have bad credit. In fact, you may be wondering How Student Loans Affect Your Credit Score (The Pros & Cons). If you take out too many student loans, this can affect your debt to income ratio (which can affect you getting a car loan or buying a house). If you take out a small student loan and pay it on time, every time, then this is a situation where a student loan would impact your credit score in a good way.
Have you gone through credit counseling?
Please don’t take out a student loan just because it’s the only way you can pay for your tuition. Think 10-15 years down the line, when you’re trying to buy a house and raise your family, those student loans are something you will have to make a payment on for many years to come. The financial decision to take out a student loan now could affect you for many years to come. Credit counseling is such a good way to understand how student loans can affect your future.
Now, if you know what you’re getting yourself into, with student loans, and have a plan, then go for it! Student loans can be a great tool for helping you obtain your degree of choice. Just use common sense, whenever you’re taking out student loans, because this makes the most sense!