4 Strategies So You Don’t Regret Taking Out a Student Loan
Regrets, we’ve had a few.
That appears to be the song that a lot of student loan borrowers are singing.
Among U.S. adults with student debt, 42% say that if they had to do it over, they wouldn’t take a student loan at all, according to a recent study sponsored by Northwestern Mutual. And another 36% say they would have borrowed less.
But with interest rates on federal student loans at record-lows — rates dropped to 2.75% for the 2020-2021 school year — it may be tempting to accept everything your school offers.
The key is to be strategic about borrowing so you can get the maximum benefit for the least amount of money, according to Heidi H. Goldsworthy, director of the Office of Financial Aid at Stetson University in DeLand, Florida.
“Loans are not a bad option for students — the real issue is student overborrowing,” she said, noting that students should only borrow for educational expenses, like tuition and books, and living expenses, like housing and food.
We’ve uncovered ways to avoid taking on more college debt than necessary so you won’t regret your student loans.
4 Ways to Help Ensure You Don’t Regret Taking Out a Student Loan
The best way to have no regrets about any loans is to avoid them unless necessary. Even at low interest rates, borrowing leaves you paying back money, plus interest, that you could have used elsewhere.
If you have student loans, you need to strategize how to pay them off in the least amount of time. (Psst, recent grads, you can learn how to permanently reduce your student loan bill here.)
But you can save yourself the heartache before it even starts if you’re heading off to (or back to) school, by borrowing less in student loans. But how much is enough?
Check out these four strategies to help you figure out how much you should borrow to avoid future regrets.
1. Create a Budget
Although budgeting for college students may be a little different from how your future self will manage money, developing smart financial habits now is the best move to make.
By creating a realistic list of anticipated expenses, you can compare that to the amount of money you’ll have coming in from part-time jobs, scholarships and savings.
After exhausting the sources you don’t need to repay, then it’s time to consider how much you need in student loans.
If the student loan figure looks scary, revisit your budget — are there places you could cut or ways to increase your income?
Yes, there will be unexpected expenses along the way, so it may feel impossible to predict your budget. But by at least creating a spending blueprint, you can adjust your budget instead of simply blowing through student loan money you didn’t need.
2. Know Which Hidden Costs to Avoid
If your list of college costs include tuition, books and room and board, that’s a good start.
But it’s just the beginning.
College expenses extend well beyond the sticker price that universities typically provide in the brochures (hint: Greek life isn’t a line item in most financial award letters).
If you’re caught by surprise, your only option may be taking out additional student loans to cover the gap.
We’ve found five hidden costs of college that might be missing from your list of expenses — and what you can do to cut them.
3. Ask Questions Before You Accept Any Loan
Financial aid award letters can be confusing — and really hard to compare, considering there isn’t a standard format among learning institutions.
So if you’re trying to compare offers — like, what exactly is included in the cost of attendance (COA) — it’s best to reach out to the financial aid office at each college you’ve applied to.
By getting the direct contact information for a financial aid officer, you’ll reach someone faster to help you answer these must-ask questions about your financial aid award letter.
4. Know When to Say No
If a college offers you $7,000 in financial aid but you only need $3,000 to cover your expenses, do you have to take the whole amount?
We get it, the offers of easy cash can be overwhelming for someone out on their own for the first time, but you’ll thank yourself later if you can work extra hours or apply for additional scholarships.
Does a $100 scholarship here or an extra $80 there seem like much? Maybe not, but those small amounts can add up to a lot less in student loans you’ll end up paying off long after college is in the rearview mirror.
And it’s not like it’s an all-or-nothing proposition when it comes to saying no to money you don’t need.
Learning how to avoid student loan debt could be the most helpful financial lesson you get in college — no credit hours required.
Tiffany Wendeln Connors is a staff writer/editor at Codetic. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.