The best way to choose the best student loans is to do a lot of comparative shopping. Just like someone would do with any other purchase, it’s important to look at the finer details of each plan and make sure everyone involved understands it well.
Below are a few tips to help make sure you know how to choose the best student loans. When the right decisions are being made, it will be obvious, no matter what kind of loan the student is planning on getting.
1. Consider how long you plan to pay back the loan.
Remember that, the longer they pay on the loan, the more expensive it will be in the long run. Lower interest loans are best, but they need to find out if the interest is variable or fixed. If the interest is fixed, it will stay the same. If it is variable, it could change and even go up substantially over the years, increasing the overall time and amount of payment.
2. Find out about the fees (if any).
Many loans have an upfront payment to pay to get the loan started. This is basically an interest payment that is paid upfront. Private companies sometimes offer this because they may be afraid the borrower could default on the loan. Like a car loan, it is a little extra insurance to make sure they get some of their money back, in the event the borrower defaults on the loan.
3. Focus on interest rates always.
Interest is the most important factor that should be considered because this is the factor that adds up the bill over the long term. If everyone just borrowed and paid back the principal, they would only pay back what they borrowed and no more. But it doesn’t work that way. Interest accrues over time and part of the strategy in how to choose the best student loan is to focus on interest rates.
4. Consider future career goals and salaries.
This is one that many students and parents overlook. In a way, it is the most important. It is important to know what a student’s approximate salary will be provided they get a good job following their years of education. Will it be enough to justify spending such a large amount of money on a loan? If not, they may want to consider a related profession or industry that does not require such a long commitment toward the educational process and that will pay off almost immediately after finishing the degree requirements.
5. Consider your current financial situation.
If there is any way that they can afford student tuition and expenses now, use a college fund or other savings before resorting to borrowing student loan money. One of the primary goals should be to remain debt-free and to teach young people to follow this model, as well. Borrowing money should only be used in a situation where it can be considered an investment. Investing in oneself and a college degree or training for a job is a good thing because it will pay off once they start working in that career. But it only pays off if they can afford the loan installments with plenty of money left over to pay for the things that are required and some miscellaneous money, also.
Whatever the choice, it’s a good idea to speak with a young person and see if they understand the long-term commitment that a student loan requires. They should learn to make a budget and follow it now so that they will be able to live within their means once they are done with their educational requirements.