Tip #83: Try to pay for education through means other than loans

Student loans are becoming a problem for more and more students.  On the one hand, student and college loans can help students who could otherwise not afford go to college or university. 

On the other hand, though, huge student loans can be a terrible financial burden after graduation. 

While it is true that most college and student loans do not have to be repaid until after graduation, the time after graduation usually carries some large financial responsibilities.  Many college graduates want or need a car, a good job, and possibly a house or home.  Each of these things requires a good credit standing, but too large student loans not only require larger monthly repayments but also may affect credit scores by overextending credit.

As tuition fees rise, larger student loans are becoming the norm, leading to financial hardship down the road for many students.  To avoid this, you should take out the smallest loan you can, relying on jobs, savings, scholarships, bursaries, and other forms of financial aid to make up the rest of your tuition and living expenses.  You should rely on loans as a last - not a first - alternative. 

Student and college loans are an investment in your future since they can help you get the education you need in order to get a great and fulfilling career.  However, these loans are a serious and usually long-term financial responsibility.  They should not be undertaken lightly. If you need a loan to pay for college, you should get the smallest loan you can and should get the best terms and rates on it possible. 

In general, need-based government-subsidized student loans generally offer the best terms and rates.  After that, college and student loans from private lenders may offer decent rates.  Personal loans and credit cards should only be used when absolutely necessary to pay for an education, as these tend to have higher interest rates and require that you start repaying them right away.

Tip #84: (Almost) never default on a student loan

Many students think that defaulting on a student loan after graduation is a smart way to get rid of a debt.  After all, they no longer need the money for school and in fact need the money for settling into a job and new home. 

However, defaulting on a student loan is a terrible mistake in almost all cases, because it affects your credit rating very negatively.  If you have student loans, it is important that you start repaying them on schedule and that you repay them on time.  Doing so will actually improve your credit score.

If you are having trouble repaying your student and college loans, speak to the lenders rather than ignoring the problem.  Most lenders will actually give you a six month grace period after graduation so that you can find a job and settle into post-college life before repaying your loans. 

If you have several loans, your lenders may be willing to help you pool them into one larger loan payment that requires smaller monthly payments.   Some lenders will also give a few months grace in case of unemployment. 

Read your loan agreements carefully to find out what your student loans are like and what is forgiven in them.  If you need to, work out a different payment schedule, seek out refinancing, or find some other way to repay. 

Only default on your student loans as a last resort when you really have no way of repaying your debts.  In that finality, be prepared for the decision to affect your credit score quote badly for some time. 

Once you default on one loan, it really counts against your credit rating - especially since as a new graduate you do not have a long credit history yet.  After all, lenders who see that you have defaulted on one financial responsibility will wonder why you wouldn’t default on their loan, as well. After defaulting on your student loan, you may be unable to get credit for some time and you will have to work much, much harder to re-establish good credit.

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