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Top Five Key Tips About Student Loan Debt:

Written by prositesfinancialJan 7 • 4 minute read

Overall, the need for student loan debt reform is clear. However, with the profit motives discussed above, this may be unlikely in the foreseeable future. So, what can we do about it?

  1. Make informed decisions around student loans.
    If you or a child is considering taking out a student loan at any point in the foreseeable future, make sure that you and/or the child is fully aware of the typical interest rates and repayment timeframes, in addition to the other facts and statistics surrounding student loans.
    The first line of defense is knowing the facts. It is also critical to ensure that the student loan is fully necessary before applying for it.
  2. If possible, use savings to pay for education rather than a loan.
    If possible, start saving for education as early as possible. You can open a 529 account to save for educational expenses and experience the tax benefits that come with such plans. Any money saved towards education beforehand can make a real difference in the amount of student loans that are required, and reduce both the interest payments and the repayment timeframe needed to eliminate the debt in the future. This will ensure you or your child is best prepared for their future.
  3. Pay student loans down as quickly as possible.
    As a general rule, the longer a student loan remains unpaid, the more interest that will need to be paid. It is in your best interest to repay the balance of the loan as quickly as physically possible in order to minimize the amount of interest you must pay, along with the length of time that having the outstanding student loan debt will affect you financially. Treat debt as a short term solution to a problem, not a long-term crutch. Debt can be a useful tool, but it can quickly get out of hand if we are not very careful and disciplined in its use.
    One student was shocked to find that for every additional day she took to repay her $28,000 student loan, she would be paying $2.33 in interest! This meant that for every single day she delayed repaying her debt in full, it was just as though she had gone out and spent money, minus any benefit!
    This is also crucial in light of the fact that student loan debt can only go up, thanks to Congressional decisions that pushed student loan debt up from a ceiling of 3.4 percent interest to 6.8 percent, and later a subsequent ruling that student loan interest may only go up over time. This means that despite agreeing to one interest rate at the time you took out your student loans, it is possible the loan’s interest rate could increase over time, pushing the amount required to repay the loan up higher and higher as time passes.
  4. Consider seeing an independent (non-government affiliated) financial advisor or counsellor before taking on student loan debt.
    Amazingly, the Federal Department of Education is the default/primary provider of advice to people considering taking out their first student loan. There is an implicit conflict of interest present here, as the entity providing you with advice is the very entity that stands to make a colossal profit from the deal should you decide to sign for a loan. This is like seeking personal financial advice from a bank or a credit card company.
    Instead, consider finding a reputable independent financial advisor who you know you can trust to be objective and unbiased, and seek their advice on how to pay for your education. This way you can help to prevent the profit motive from becoming an issue in any advice they give you.
    All too frequently, asking people about their student loan debt stories leads to troubling tales involving confused and exhausted parents, clueless students, and college administrators who may never even question students about how the levels of debt they are taking out to pay for their education.
  5. If you do decide to borrow to pay for your education, be sure to take out the correct amount.
    If you take out a loan for your education, it is critical that you take out the amount you need, no more, and no less. Should you take out more than necessary, you will still be required to repay that amount in full with interest, whether or not you actually needed that much for your education. So do not be tempted to take out extra and spend it on other nonessential things at college.
    On the other hand, be careful not to be too conservative with your loan and take out too little either. Taking out too small a loan could result in your not having sufficient funds to pay for your tuition or room & board, which could result in a withdrawal from college that could severely hamper your education and delay graduation.
    Think of Goldilocks here, from the children’s fairytale story. You want to take out the perfect amount of college debt: as little as possible, yet as much as necessary.
    Student loans are a powerful but risky tool: be careful and responsible with them.
    Student loan debt is a tool, and it is a dangerous one at that. If handled carefully and repaid quickly, student loans can be a way to obtain a college education that you could not otherwise afford, but which may potentially allow you to earn more later in life. Just be careful to research all the facts, know what you are getting into, and have a good plan to repay the debt in a timely manner when (or even before) you graduate.
    Do you have any other tips to share about student loans? Student loans can be scary, so any tips from others who have dealt with them in the past could be helpful to those currently dealing with them, or those who may deal with them in the future. Feel free to share your own tips in the comments below. We’d love to hear from you, and so would others in your situation!

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