Student loans are both a god send and also a curse for every student. Student loans provide much needed funds to students to help them with their studies and pay their bills while attending college or university. They can be a curse as well since some students graduate owing thousands of dollars to government and banks. Paying these student loan installment payments after graduation can be quite difficult for students after they graduate especially if they have trouble finding a job. The loan typically becomes due upon graduation and installment payments start immediately.
With so many jurisdictions across Canada and the United States we are not going to try and describe all of the different types of student loans. Safe to say that they fall into several categories. One category will be interest free until graduation or perhaps as long as 6 months after graduation. Other types of student loans that are available will have interest charged immediately just as you would with any regular loan. Some students will have a combination of both types of loans prior to graduation and once they graduate, a blended interest rate and loan will be set up with corresponding installment payments.
In a few cases student loans will be forgiven, however you should not really count on this. The best approach by far is to excel in high school and at college and university to qualify for scholar ship funding which usually does not have to be repaid unless you violate the conditions of the scholarship. Treat the chase for scholarships as a job and a way to earn money while going to school. Of course you need to make sure you do not jeopardize your studies, so you need to find the right balance.
Sticking to a Budget
Many students who are attending school for the first time away from their parents do not really have any idea what things cost and do not know how to set up a budget. As a result before they know it they have used up the proceeds of their scholarship or student loan and need more money. This of course has longer term consequences. The most obvious being that when they graduate they will owe more money and their monthly installment payments will be that much larger.
The best approach by far is to set up a budget that is withing the limits of your loan and stick to it. You may have to cut back a lot, however you will thank yourself when you graduate and find that you have a smaller monthly installment payment to worry about.
Why Do we Care About the Size of the Installment Payment
When we graduate from college or university, and have a student loan, this loan will impact our credit score and our ability to borrow money. If you fail to make a payment on your student loan you will negatively impact your credit score and it will be even more difficult to get a loan. Many students when they graduate, want to buy a car, purchase furniture, clothes etc and all of this takes money that they do not have.
It means credit cards or more loans. Before you know it your student loan installment payments and your other loan installment payments are more than you can handle. With credit card interest rates at plus 20%, installment payments can quickly get out of control.
Going back to student loans and installment payments, one big advantage of student loans is that they are often interest free while you are still in school. The minute you graduate or quit, the loan becomes due and interest is charged on your student loan. Quitting school before you graduate, regardless of the reason causes the loan to become due and payable. You need to examine the terms before you sign to see just what the requirements are should you be forced to quit school due to poor marks etc.
Discuss the Terms with the Bank
The best time to negotiate the terms of your student loan is before you sign on the dotted line. Once you have signed the documents, there is little chance to negotiate your terms. Interest rates, the term of the loan and when the installment payments will begin are negotiable before hand and not after. Get all of these items clear ahead of time so that you fully understand this before you sign.
Knowing when installment payments will begin and when interest will be charged at what rate will help you understand what your obligations are and allow you to budget accordingly once you graduate. Knowing all of these details will avoid any surprises down the road.
Co-Signing on Student Loans
Since most students do not have any assets and do not have any credit history, their parents are often asked to co-sign the loan with the student. While this is a wonderful thing to do to help your son or daughter, the parent should really understand what they are signing and what the obligations are should the student be unable to repay the loan for any reason.
In the worst case the parents can be stuck paying the loan and their credit rating may also suffer if payments were missed as well. It pays to pay attention to the details and also that your son or daughter is fully committed to doing well at school so that they can find a job when they graduate and repay the student loan with regular installment payments.
Any failure on the students part will reflect directly on the parent if you co-sign the loan. Credit ratings, ability to borrow, remortgage your home or car are all areas that might come under scrutiny should there be a default on student loan installment payments.
Most parents do not really understand what they are getting into until it is too late. Figure it out now and discuss this with your bank manager and your student children prior to co-signing any student loan.
Disclaimer: The views expressed by this author don't necessarily reflect the opinions of Lazerloan.com, it's owners, or it's affliates.
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