Unless you’re fortunate enough to earn a scholarship or grant, typically those pursuing a higher education are forced to take out loans in order to fund their schooling. And while loans are the norm, they’re also the reason why so many college graduates are in severe debt immediately following their graduation ceremony. In fact, according to the most recent statistics, the graduating class of 2011 is the most indebted class ever, averaging about $22,900 in debt — a staggering 47% increase from 11 years ago. The high number can be attributed to many different factors, including borrowing too much money, attending a school way-out-of budget, acquiring a low paying job after college, or worse — not getting employed at all. Whatever the case, you should always aim to be a smart consumer when it comes to your school loans; this includes being well-informed about your loan even in the preliminary stages, understanding the terms of your promissory note, making loan payments on time, and keeping your lenders updated with all off your personal information. This is exceptionally important because even the tiniest slip up can follow you long-after graduation. This resource is provided to help student borrowers develop some insight into how loans work and to explain what one should do to avoid getting into even deeper debt.
Since the promissory note is indeed a legal document, by no means should one just quickly gloss over it and sign it. Make sure that you truly understand what is expected of you and what may be subject to change. If something is not clear or there is an error on the promissory note, do not sign it until the issue is resolved. Most lenders allow students to sign promissory notes electronically to speed up the process, but you should not be afraid to print it out to check for errors or request a hard-copy. To get a better idea of what a promissory note looks like, click here.
However, if you are just careless about paying bills on time because you are forgetful, if the option is available it’s probably best if your monthly payments are automatically deducted from your bank account. This way you are certain that the proper amount will be paid each month and you will not have to risk the consequences of late penalties. This option may even save you more money in the end. Various private and federal lenders will give borrowers as much as a 0.25% reduction in interest rates for those who choose to do automatic withdrawal.
If you miss your payments because you simply do not have the funds to pay your monthly loan, then you need to explore all of your options — you can’t just let the unpaid bills stack up. This is the easiest way to go into loan default and ruin your credit score. Some options may include applying for a loan deferment or looking into loan forbearance (although forbearance will result in an overall higher loan cost in the end). Other options include loan cancellation, changing your monthly payment plan to a smaller amount, or consolidating your loans.
No matter if your loan is small or large it’s crucial that you are involved from the very beginning and pay close attention to all of the details from the start. Read your loan letters, those that are delivered both via standard mail and electronically, and make sure that you make as many responsible choices as you can until your loan debt is paid off; this includes living within your means and saving money. You might have to penny pinch and sacrifice to make all of your payments, but it will definitely be worth it in the long run.