What I Wish I Knew About Taking Out Student Loans Before College
A personal finance blogger who usually discusses making, saving, and growing money, has some regrets about how uninformed he was about just those things while in college . . .
I remember restlessly laying in my bed the night before freshman move-in day, dreaming about what the next chapter in my life would bring.
I had visited my sister when she was in college, taken tours of many campuses, and talked to many older friends about it—but I had no idea what it would be like to experience so much freedom and responsibility after living at home for 18 years.
That night, I wasn’t thinking about late nights at the library, or how much student loan debt I would graduate with . . . but maybe I should have.
You see, I was successful in college, but there are definitely some things that would have made both my time while an undergrad and post-graduation a little easier.
Now that I’ve learned those lessons, I help students out who are about to embark on the “best four years of their lives” as much as possible.
Here are some of the most important things that I wish I knew before heading off to campus.
What Should You Know Before Taking Out Student Loans?
Understand How Student Loans Work and Create a Plan for Repayment
It’s a little disconcerting to know that today, around seven out of ten students use loans to help pay for college.
What’s even scarier?
According to the College Board, the average cumulative student debt balance was $28,800 for 2019 bachelor’s degree recipients who took out loans to pay for college, and 6 percent of borrowers owe more than $100,000.
That’s a lot of money to start a career with.
When I started college, I knew I would have to take out some student loans, and I understood that I would eventually have to repay them, but that was pretty much the extent of my knowledge.
My ignorance led me to make some poor decisions with my money and miss out on saving opportunities.
It is absolutely crucial to know the ins and outs of student loans before accepting the money.
At the very minimum, all borrowers should know what types of loans they have (federal vs. private), their interest rates, the repayment plans available after graduation, and how much their debt will cost them each month and over time.
Make Student Loan Payments while in College
If your child has federal student loans, they will not be required to start repayment until six months after graduation.
Even most private lenders will give borrowers the option to defer payments until after graduation.
This makes it very easy to set loans on the back burner and completely forget about them.
One of the best ways to save on student loan debt, though, is to make payments while in college.
How does this save money?
For unsubsidized federal student loans and private student loans, interest will accrue during college.
This means that every month, a percentage of the principal is charged and added to the total balance.
Then, each subsequent interest charge will be for even more.
If your child makes these interest payments, at least, then they will graduate with the same balance that they originally borrowed.
If they can pay more than the interest, then by all means they should go for it!
They will graduate with less debt than they started school with.
If your child has subsidized federal student loans, the government is nice enough to pay the accrued interest while they’re in school . . . but that doesn’t mean they can’t make payments!
Any payment made will directly reduce the principal balance and your child can graduate with significantly less debt than they started out with.
If your child is an educated consumer, and understands the student loan process, they will be ahead of the game.
By doing this, borrowers will be more conscious of how they spend their student loan money (and other money) while in school, and it will hopefully inspire them to take some actions to reduce the need for student loans and reduce the total cost of their debt long-term.
What kind of actions?
Glad you asked.
Here are the most effective, in my opinion.
How to Avoid Student Loan Debt
Apply for as Many Scholarships as Possible . . . Then Apply for Some More
There’s no need to take on massive amounts of student loan debt if you have earned a bunch of free money for college.
That’s exactly what scholarships are—free money!
Though I could write a whole article about winning scholarships, the number one thing your child can do is to simply apply for as many as possible.
Private scholarship money does not generally cover huge swathes of a tuition gap, but who would turn down extra funds?
Local and niche scholarships are the best bet.
Try to find scholarships that use similar applications and then reuse the same answers over and over with some minor tweaks.
One thing that I wrongly assumed while in college was that students could only apply for college scholarships while in high school.
This is wrong!
Many scholarships are available to college students as well so don’t stop once your child is on campus!
Try to Find a Part-Time Job or Do a Work-Study Program
I never had a job in college besides during the summers, but I wish I did.
Having a part-time job—even just ten hours a week or so—can really help with expenses.
Instead of using student loan money (which they will have to pay back with interest) for that night out with their buddies or that date with their crush from calculus, they can use the cash they earned from a job or Work-Study.
For those of you who don’t know, Work-Study programs give students part-time jobs on campus and a portion of the money goes to college costs while some goes into the students’ pockets.
Having a part-time job in college may also help students:
Start Building Credit in College
I didn’t take out my first credit card until I was a senior in college, so I didn’t have much of a credit history once I entered the “real world.”
I learned the importance of this when I went to apply for an apartment postgrad and the landlord told me I had next-to-no creditworthiness.
Needless to say, I had to do some convincing to get him to rent me his apartment.
One easy thing that college students can do to help with their financial future is to take out a credit card and start using it wisely.
That doesn’t mean make every purchase on it if they don’t have the money.
That means make some small purchases every month that they know you can afford and actually making the monthly payment—completely and on time.
This will help your child start building credit so they can be eligible for things once they graduate such as better credit cards, auto loans, mortgages, student loan refinancing, and much, much more.
If your child has just recently entered college or will in the coming years, I wish I could trade places with them.
It’s an amazing time with countless new experiences, friends, and opportunities.
I would do anything to go back.
Despite all of this awesomeness, and perhaps because of all of this awesomeness, it is also an easy time to lose sight of what is important and to damage your future–especially financially.
Be sure your child know how they are paying for college, what they can do to help themselves out during college, and what commitments they will have after they receive their diploma.
If they do this, they can walk around campus a little more confidently knowing that they are already a step ahead of most of their peers.
One of the keys to avoiding student loan debt is finding schools that will be most generous with their money.
Road2College’s College Insights tool is essential for researching colleges and developing a list of affordable schools.
Using the College Insights tool also saves time, energy, and money.
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