A new report recently released from the Project on Student Loan Debt at The Institute for College Access and Success (TICAS) found that the average student loan debt for those who graduated in 2012 with a bachelor’s degree was $29,400. Although this is the fifth year in a row that student loan debt has escalated, a number of factors may have contributed to this new figure. Many of those who graduated last year came in at the height of the recession (2008) and probably had little assistance from their parents, especially those whose parents had lost a job or had their savings depleted. Students may have also been unable to find suitable employment for themselves to help cut their costs. Regardless of the economy, there are also other factors that could have contributed to the higher debt load. Unfortunately, many students make the mistake of committing some common errors when it comes to securing financial aid for college, especially those who utilize student loans to cover their costs. If you are applying for college or considering a student loan for next semester, here are five common student loan mistakes you should avoid.
1. Not Filing the FAFSA
You may think that your family’s income is too high for you to receive any federal financial aid, but not completing the Free Application for Federal Student Aid (FAFSA) is a huge mistake. There are a variety of factors that are considered when determining whether or not you are eligible for Pell Grants and other federal aid. Even if your family (or you) earns too much, it’s still a necessary component of the financial aid process. This includes need-based grants, merit-based and athletic scholarships, as well as other financial aid programs offered by your college or even your state. There are even some private scholarship providers who require a completed FAFSA in order for you to receive their awards. Finally, if you want to take advantage of low cost federal student loans, you have to file the FAFSA. The FAFSA will not only determine your eligibility for these loans, it also serves as your application. And, even if you don’t have financial need, you can still receive a Direct Student Loan. You should complete the FAFSA as soon after January 1st as you are able beginning in your senior year of high school and file a renewal every year you are in college.
2. Letting Mom & Dad Do Everything
It may seem easier to hand over the FAFSA and other financial aid paperwork tasks to your parents, but that could be a big mistake. Many students who let their parents handle the financial side of college planning find that they are unaware of the amount of debt they have taken on and are unfamiliar with the student loan process, including repayment terms and conditions. To avoid any unhappy surprises at graduation, I suggest tackling the process yourself. Be sure to keep track of how much money you have borrowed and understand when your repayment period will begin. It’s also important to estimate your monthly loan payments before you take out any loans. Nothing is worse than having your grace period end and finding out that your student loan payments exceed your anticipated paycheck.
3. Borrowing More Than You Need
One way to ensure your student loan payments do not exceed your salary is to limit the amount you borrow. It is all too tempting to take out loans over and above what you need, especially if you have been living on the Ramen Noodles diet for a semester or two. Even if your college offers you loans that exceed your tuition and fees, try to avoid taking on the additional debt. Using your student loan funds to cover living expenses, such as food or entertainment is not always a wise decision; that new pair of boots or trip to Cozumel over Spring Break could really cost you when you tack on interest over the years. Instead, pick up a part-time job or look into work-study opportunities to help cover these expenses. Only borrow what you absolutely need.
4. Not Considering Cheaper Paths
Getting that acceptance letter to the college of your dreams could turn into a real nightmare if you don’t consider your return on investment. Although it may seem like college ‘A’ is the only place you belong, you’ll quickly learn that success is what you make of it. Always do the math before you decide which college is the right fit for you. For example, completing your general education courses at a community or junior college could result in substantial savings, or you might be able to CLEP some courses to reduce your overall expenses. Plus, if you do exceedingly well, you may be offered merit-based aid at the school you transfer to. It’s also important to look at the ‘true’ cost of attendance, as you may find that some private schools are actually less expensive than public colleges once you factor in tuition discounts commonly offered in the financial aid package you receive. Do your homework and find a school that offers you a quality education at a price you can afford to help keep your student loan debt to a minimum.
5. Failing to Apply for Scholarships
Many students often take the easy route and simply take out larger student loans to help cover their expenses, instead of investing a little time in applying for scholarships. This is one of the biggest mistakes you can make when it comes to college financial aid. If I told you that you could get paid $50 an hour for working in your pajamas, wouldn’t you jump at the opportunity? Well, think of scholarships as your new part-time job. A few hours of time could actually result in some serious college cash. And here’s the best part–scholarships are easy to find. You can check with your guidance counselor, college financial aid office, local businesses and social media forums. Another way to find scholarships is to use a free online scholarship search, like ScholarshipExperts.com. Just be sure to check back every month, as new scholarships become available all the time. But, don’t be fooled into thinking all you need to do is apply. Put your best foot forward. Ensure essays are well-written and that you dot all of the other ‘i’s’ required by the application. Remember, many will apply–few are chosen.
Always exhaust free student financial aid before turning to student loans to help fund your education. And remember, if you find that you do need to borrow money to help cover your expenses, be sure you understand the terms and conditions of your loan before you sign the promissory note.