As with any complicated financial dealings, there are some pretty obvious ways to screw up when getting a student loan. These include things like not filling out the FAFSA form correctly or taking the first offer before shopping around. Those are common errors.
Less common, however, are the mistakes that student loan borrowers make that can easily be avoided. And with so much at stake, student loan borrowers can’t afford to make many mistakes.
According to a U.S. Department of Education study released this month, 238,000 Americans defaulted on their student loans in 2008 (the most recent year that student loan default data was collected). The national default rate is up to 7.0%, compared to 6.7% in 2007.
If you want to avoid that fate, it’s best to not only keep a close eye on the common traps that can plague student loan borrowers, but the uncommon ones, too. Here are three good places to start:
What’s a little fibbing between friends, or between borrowers and lenders? It's a lot, actually. If you fudge any financial information on a loan application, you’ll lose the loan and open yourself up to any fees and fines linked to falsifying loan documents.
Play it straight on your finances, or those of your parents. They’re at the top of the list a borrower will check when verifying your loan eligibility.
Don’t borrow more than you need.
Studies show that student loan shouldn’t comprise more than 10% of a borrowers monthly income. Yet borrowers continue to take more money than they might need for college.
Check for average salaries in your chosen career field. Websites like Vault.com routinely publish fresh data on salaries in numerous fields. Look for the average in your career sector and figure out what 10% of that salary might cost you with monthly student loan payments. Then borrow accordingly.
Don’t max out tuition.
Sure, an Ivy League degree will look great for potential employers – but at what cost? Harvard University recently upped its annual tuition to north of $50,000. Many top-tier schools are closing in on that mark, but that translates to $200,000 in student loans, if you even manage to get your Harvard degree in four years.
Go to a less expensive school for a year or two, then upgrade to a better school via a transfer. You’ll save money and still be able to flaunt that elite school experience at any job interview.
There’s no shortage of ways to save on student lending costs. Visit sbup to learn more here and here.
—For more ways to save, spend, invest and borrow, visit MainStreet.com.