As students begin or return to school, the need to take out student loans remains one of the most important concerns this time of year. Whether it is loans, grants or scholarships, most full-time college students receive some form of financial assistance during their tenure, according to the College Board. The decision to take out some form of financial assistance can be one that is both overwhelming and intimidating.
It’s imperative to keep in mind that obtaining a student loan is not just a transaction; it’s a binding legal commitment. The borrowed amount comes with the obligation to repay it along with accrued interest over time. More than half of this year’s graduates expect to have student loan debt, with almost 70% of those saying their debt will influence the type of jobs they pursue after graduation, according to a recent Handshake report that surveyed nearly 1,150 students a part of the Class of 2024.
While immediate repayment might not be expected, familiarizing yourself with the following fundamental principles right from the start will prove instrumental in preparing for your role as a responsible borrower.
1. Understand the Type of Loan You’re Choosing
The landscape of student loans offers various options, each with distinct terms, interest rates, and eligibility criteria. The two most common types of loans that students choose are federal and private. Federal loans, often characterized by lower fixed interest rates and flexible repayment plans, are typically the preferred starting point due to their borrower-friendly features. On the other hand, private loans, provided by banks and credit unions, may require a credit check and could involve higher interest rates. Research the nuances of each loan type, evaluate their suitability based on your circumstances, and make an informed decision that aligns with your financial future.
2. Borrow Only What Is Needed
While it might be tempting to borrow the maximum amount offered, it is advised to borrow only what is essential to cover tuition, fees, books, and other necessary expenses. Remember, these borrowed funds must be repaid over time, and a thoughtful approach to borrowing can save you from unnecessary financial strain down the line. Create a realistic budget that encompasses your needs, and exercise financial discipline by resisting the temptation of excess borrowing.
3. Remember Interest Rates
Interest rates significantly impact the total amount you’ll repay over the life of the loan. Federal loans often come with fixed interest rates, providing predictability in your repayment journey. Private loans, however, may have variable interest rates that can fluctuate based on market conditions. Take time to understand the interest rate associated with your chosen loan and calculate the potential long-term cost. This awareness empowers you to make choices that align with your financial goals.
4. Student Loans Count Toward Credit Score
Your responsible management of student loans contributes to building a positive credit history. Timely payments and adherence to the terms of your loan agreement reflect positively on your credit score. On the other hand, missed payments or defaulting on loans can adversely affect your credit score and ultimately cause long-term issues in the future. Credit scores extend beyond graduation and can influence future financial endeavors, such as securing an apartment, buying a car, or even obtaining a mortgage.
5. Make Payments on Time
Timeliness is essential when it comes to repaying your student loans. Missing payments or paying them late can lead to penalties and negatively impact your credit score. Consider setting up automatic payments to ensure consistency and ease of repayment. If you encounter any financial challenges that hinder your ability to make payments, explore alternative options like deferment or forbearance in consultation with your loan servicer.
6. There Are a Variety of Ways to Repay
Repayment plans are designed to accommodate diverse financial situations. Federal loans offer options such as Standard Repayment, Income-Driven Repayment, and Graduated Repayment, each tailored to different income levels and circumstances. Private loans might have varying repayment plans, so it’s crucial to discuss options with your lender. Understanding and selecting the right repayment plan can alleviate financial strain and ensure a smoother repayment journey.
As you begin or re-enter the journey of your chosen academic pursuit, prepared with these insights, you’re better equipped to make responsible financial decisions. Remember, your community bank is here to support you every step of the way, offering guidance, resources, and a commitment to your financial well-being. Your journey toward higher education is not just about obtaining knowledge; it’s about acquiring financial wisdom that will serve you well throughout your life.
It’s never too early to develop healthy financial management skills and habits. Student checking accounts provide a valuable tool for students to navigate their finances confidently. It’s essential to establish financial independence and responsible money management, and opening a student checking account is a significant step toward achieving financial empowerment. Responsible and consistent use of a student checking account has many benefits, from building a positive credit history to learning how to set budgets, track expenses, and establish financial management throughout college and beyond.
To learn more about Amerant Student Checking accounts, visit amerantbank.com/Student.
