There are always risks when it comes to money matters. Some known. Some not.
When it comes to the risks of student loans, they could have a huge impact on your financial future. So if you are planning to take out a student loan, you want to go in with your eyes wide open. And this article helps you do that.
Below we cover some of the common risks associated with student loans. If you are planning on taking a student loan to help you get through college, you should know that there are certain risks that come with it. In this article, we will discuss the risks of student loans that you should consider.
The Risks of Student Loans
Before going into debt, let’s discuss the obvious (and less obvious) risks. As with every loan option out there, student loans have interest rates attached to them. It is important to review the interest rates before you agree on any loan offer.
Another obvious risk is that even if you do not finish your degree, you will still have to pay for the student loan. On another note, even if you do finish your degree, you will still be left with a hefty loan to pay off while you’re looking for a job.
Some people take more than a decade to pay off their student loans. However, the standard repayment plan for federal student loans is ten years.
The expectation is that within this given timeframe, you should be able to finish your degree, get a job and pay for your loans. If you don’t, then there are penalties attached, depending on what type of student loan and who the lenders are.
Minimizing The Risks
Unfortunately, there is no way to avoid these risks. And there are little options to minimize the fees. The best way to minimize the risks when applying for student loans is to do your research before enrolling in a degree program.
Find out everything you can, including the success rate of a program before applying. This will help you figure out if the degree program is worth taking at all.
You also need to do your research on how many students have a good success rate after finishing the program. By doing so, you can see if there’s a high chance you’ll land a job after graduating.
Another obvious research you need to do is the tuition fees. Every college and university has their different fees. So you need to figure out a budget in advance. Keep in mind that these fees don’t include the money you will spend on food, housing, transportation and any other living expenses.
You can also avoid relying heavily on your student loans by taking a part-time job while you’re getting your degree. This way, you won’t have to rely on student loans for your living expenses.
It’s also ideal to choose a school or university with low tuition costs, located in an area where the cost is living is pretty low.
Private Loans Vs. Federal Student Loans:
- Interest rates are higher in private loans than federal student loans.
- Private student loans do not have limits on the amount you can borrow. On the other hand, federal student loan limits the loan to only $23,000 in undergraduate student loan debt.
- Federal student loans include programs such as student loan forgiveness, student loan deferment and free student loan consolidation. These benefits are not given by private banks who offer student loans. If it wasn’t for these protections, there would be millions of borrowers put into a higher risk of bankruptcy.
- Private student loans cannot be discharged in bankruptcy. This means that it is possible for individuals who take private student loans to be stuck in debt for life.
- There are a huge number of college students who take out student loans and ends up not finishing the degree they took out a loan for. In the end, they leave school without a degree and a large debt.
- Student loans takes a huge chunk out of your paycheck as soon as you start your job.
The next time you think of getting a student loan, think carefully. Consider these risks and weigh if these risks are worth the benefits you will get. You also need to make sure that you get a secure and big enough return on the quality of education you will be getting and the degree. At the end of the day, taking out a student loan means you’re buying the education. Be sure you’re at the better end of that deal.
This article is part of our series: Student Loan Advice for Online College Students
The next topic in the series is: Pros and Cons of Refinancing Student Loans