Six False Assumptions New College Students Make About Student Debt
Deciding which school to attend can be difficult—especially the financial aspect. For students entering their first year of college, it can be hard to figure out exactly how much is really affordable in terms of student loans. And if you got into your top-choice school, it can be tempting to simply choose the optimistic outlook—and enroll even if you’re not sure about the finances.
There are certain assumptions many students make when it comes to their student loans—that can hurt them in the long run. Here are a few to watch out for.
The monthly amount we’re discussing now will stay the same
Your financial aid counselor may help you by breaking down your loans into the amount you’ll be responsible for every month once you graduate. This is an important figure, because it will help you decide whether it’s financially realistic for you to attend this school—and whether you’ll be able to afford your loans once you graduate.
However, the monthly amount you have now likely won’t stay the same. Federal loans have interest rates that stay the same, but private loans have variable interest rates—meaning they change periodically based on a variety of factors. And by “change,” they generally mean “rise.”
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The amount I owe now will stay the same
Also not true. If you’re at the beginning of your college career, it’s important to realize that your tuition is going to rise—tuition rates have gone up approximately 15% for four-year public institutions between 2008 and 2010, and they’re only going up from there. You may have to take out more loans to cover additional costs in later semesters. Which means a larger monthly loan bill when you graduate.
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I’ll get a good job out of college
You may think that the career and the college you’ve chosen virtually guarantee a good job after you graduate. But the economy can be difficult to predict—and we’re in one of the worst job markets in recent history for new graduates. When considering your likely income after graduation, don’t be optimistic. Take the pessimistic route—and consider how much you’d be able to pay back per month if you were underemployed or unemployed for a considerable amount of time.
My school is offering me the best deal available
Also not necessarily true. Schools frequently have partnerships with specific private lenders—but that doesn’t mean that another lender somewhere else couldn’t give you a better deal. Especially if you feel your interest rates could be lower, it could be in your best interests to shop around and compare offers from several different private lenders.
Private scholarships won’t reduce the amount of aid I’m eligible for
This is worth researching. The more scholarships you receive from a traditional or accredited online college, the fewer loans you may need—which is a good situation. However, it’s also possible that some scholarships can reduce your eligibility for low-interest-rate federal loans. A scholarship is always a better deal than a loan, no matter how good the loan’s terms—but it’s possible in some cases that the deal you’re getting overall isn’t as good as you think.
The financial decisions you make at the beginning of your college career will affect you for decades after you graduate—and it’s important to make choices that are informed and well considered. Avoid these common misconceptions, and avoid the optimism trap—make the assumption that you’ll be making less when you graduate, and that the economy won’t have recovered. If you’re sure you can afford even more than what you’ll owe per month (because tuition rates and interest rates rise), even in the worst-case scenario, you’re probably making a good financial choice.
FinAid.org: Student Loan Advisor
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