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What I Wish I’d Been Told About Student Loans Before Borrowing

This article was written by Hala Baig, a client happiness specialist with Earnest.

When I was accepted to college, I could barely contain my excitement. It was my first chance at building an independent life for myself and to start realizing my dreams.

However, when it came time to register for classes my optimism turned into worry at the sight of tuition and cost of living estimates. The average amount of student loan debt for a college graduate with a bachelor’s degree is $46,000, according to data from Earnest

After a long conversation with my parents, we decided the only route to be able to afford the four-year university of my choice was to take out a federal student loan. I also decided I would work while taking classes in college to help minimize my debt.

Now, one year out of college and in my first full-time job here at Earnest, here’s what I wish I knew before I signed all that paperwork for those loans.

Know the Full Cost of College

During my senior year of high school, I learned about FAFSA, grants, and scholarships through my school’s guidance counseling office. What my college counselors did not provide was information about the real costs of a college degree—like books, living expenses, and more. The fact is grants and scholarships are unlikely to cover the entirety of your higher education expenses. I wish my counselors would have told me this up front so that I could better plan ahead.

Borrower Tip: Speak to Current Students About the True Cost of College

To set more realistic expectations for undergraduate and graduate school alike, talk to current students at prospective schools about their budgets to get a better sense of what your college costs will actually look like. Compare that to the Cost of Attendance (COA) figure provided by the school’s financial aid office.

Understand Your Student Loan Options and the Differences Between Them

Federal student loans, private student loans, subsidized and unsubsidized Stafford loans, Parent Plus loans, and cosigned private student loansI had no idea what any of these terms meant or how they would affect the interest rate and deferred repayment options for my loans. Spending even just a few hours learning about the differences and similarities between the various loan types and loan servicers could have potentially saved me time and money in the long run.

Borrower Tip: Research Your Student Loan Options

Only undergraduates qualify for subsidized Stafford loans; on the contrary, both undergraduates and graduate students both can qualify for unsubsidized Stafford loans.

If you have maxed out your federal loans, consider private loans to help bridge the affordability gap. Be sure you understand the terms of the private loan you are considering before you sign on. Don’t rush your research!

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Keep Tabs on the Total Amount of Student Loans You Are Borrowing

It sounds silly, but I only realized how much I took out in loans after I graduated and entered repayment. I attended a college that ran on the quarter system, so every three to four months I would get an estimate from my financial aid office and accept the terms and conditions of the loans offered without a second thought. By graduation, I received statements totaling the amount per servicer and was shocked to find out just how much I had borrowed. In hindsight, I may have overestimated how much I needed with respect to my cost of living.

Borrower Tip: Budget During College and Track the Total Amount You’re Borrowing in Student Loans

Track your loans as you take you them — that will help you have a clear view of how much you’re actually borrowing as you go. This will also help with basic budget building while in college, and help you easily transition once you leave school and start working full time.

Know Your Servicers’ Student Loan Repayment Options and Rules

Once I got a job and began earning enough to pay down my student debts, I couldn’t figure out my payment options with each individual servicer. Some charged fees to pay early/extra, while some locked me into a deferral I was prepared to leave. I also never knew how much of my payment was going toward interest versus principal or how to adjust that.

Borrower Tip: Choose a Lender with Flexible Repayment Options and Refinance Your Loans After College

If you go with federal loans, consider all of the repayment options available to you. Also, review at what time you are able to apply for cosigner release. This is when you will be able to remove your cosigner from the loan agreement and let them off the hook for payments at any time in the future.

You cannot choose who services your federal loans when you take them, but you can always consolidate or refinance your student loans after you graduate. Those options can help simplify your repayment.

Formulate a Foundational Student Loan Repayment Plan

Do not wait until the end of your grace period to figure out a payment plan that works for you. If you can, don’t even take out loans for your college degree until you have a repayment plan in place. Setting up a budget for your loan payments can seem overwhelming, but once you get into the habit of making monthly payments it will be second nature.

The amount you pay each month will depend on how much you borrowed. Reach out to your loan servicer to discuss your options and pick a plan that works for you and helps you make a dent in your principal every month you can.

Borrower Tip: Choose a Lender with Flexible Repayment Options and Refinance Your Loans After College

You cannot choose who services your federal loans when you take them, but you can always refinance or consolidate or refinance your student loans after you graduate. Those options can help simplify your repayment.

I’m finally in a place now where I thoroughly understand my loans (working for a company that specializes in student loans helps, of course), but if I could go back and give my pre-loan self just one tip, it would boil down to this: Do your research before you borrow.

Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.