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What I Wish I Knew About Student Loans (After I Took Them Out)

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 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 debt for 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 university of my choice was to take out a 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.

Cartoon of cap, money, brain

Set realistic expectations

During my senior year in 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 college — like books, living expenses, and more. The fact is grants and scholarships are unlikely to cover the entirety of your college expenses. I wish my counselors would have told me upfront so that I could better plan ahead.

Tip: 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 real cost will be. Compare that to the Cost of Attendance (COA) figure provided by the school’s financial aid office.

Understand the differences between types of loans

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

Tip: Only undergraduates qualify for subsidized Stafford loans; undergraduates and graduate students both can qualify for unsubsidized Stafford loans.

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Keep tabs on the total amount 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. 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.

Tip: 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.

Know your servicers’ rules for repaying those loans

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

Tip: You cannot choose who services your federal loans when you’re taking them, but you can always refinance or consolidate after you graduate. Those options can help simplify your repayment.

Today, I am finally in a place where I understand my loans thoroughly (working for a company that specializes in student loans helps, of course). But if I could go back and tell my pre-loan self what to know, 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.