Thousands of college students (and their parents) who are not fortunate enough to have sufficient savings to pay for college must apply for student loans each year. Statistics show that about two-thirds of all college graduates entered the working world with some level of student loan debt in 2007-2008. Of course, some are eligible for much more aid than others, but there are certain things that you need to know before you start filling out your loan applications. The following is a list of key facts that should be clearly understood before the application process.
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- Know what type of loan you're applying for.
In many cases, students can qualify for more than one type of loan. It is therefore important to know at least the major characteristics of each type of loan that you apply for. PLUS loans, Stafford Loans and Perkins loans each have unique rules and features. Knowing which type of debt you are eligible for can streamline and simplify the application process.
- Know your credit score and get a copy of your credit report.
As with any other type of debt, your credit score can affect the size and type of loan that you can receive. Make sure that all errors have been reported and corrected before presenting this to your financial aid officer. There are also some types of loans that do not examine your credit as a requirement for approval; those with poor credit should inquire as to which types of loans fall into this category. (Not sure about your credit score? Check out How Is My Credit Score Calculated?)
- Know your probable earning potential after you graduate.
If you are majoring in English or one of the fine arts, the odds are high that you might not be able to find a steady job after graduation, or at least one that pays much. Do some research and find out what other graduates in your field are earning and how well they are able to manage their loan payments.
- Know at least the approximate terms and amount of your loan payments.
If you expect to start earning $30,000 a year when you graduate, a $500 a month loan payment may be pretty hard to swallow after all your other bills are paid. Some experts feel that the federal government has made it too easy to acquire student loan debt, and many graduates face an enormous struggle to pay off their loans on top of their credit cards and car payments. (For more, see Cash And Student Loan Foregiveness: The Perfect First Job.)
- Know your options if you are in the military.
Students who have served or are serving in the armed forces have special loan options through the G.I. Bill and other programs. In most cases, these loans will provide better terms than other types of financial aid. Consult your C.O. or Family Assistance Center for more information on what is available for you.
- Know how much you are willing to borrow.
Many students graduate with excessive amounts of student loan debt. Decide on a dollar amount that you are willing to take on and then find or create alternative sources of funding for the balance. Joining the military for a term and using your enlistment bonus and other forms of pay for college can drastically reduce the amount of money that you will need to borrow. Working part-time during the school term and in the summer can also help to defray expenses - and it will look good on your resume.
The Bottom Line
Knowing your goals, limits and situation will be the key to receiving the right type and amount of student loans. Those who plan ahead and know what to expect will start their careers on a much better footing than those who simply take loans because they are available. (For more, check out our Student Loans Tutorial.)
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