Stay smart with a student loan strategy
Going to college is a life-changing experience that can open doors to new careers and increase your lifetime earning potential. If you are looking for a new student loan or are trying to make the best out of the repayment period, make sure you are avoiding these common student loan mistakes.
Not considering private loans
Many would-be-students shy away from private loans because they have heard that they lack the protections and benefits that come with federal loans. While it’s true that federal loans offer a fixed interest rate in contrast to most private loans, it is often possible for a student to get a lower interest rate with a private loan, particularly if a parent cosigns. If you are able to obtain a much lower rate with a private loan, then it’s worth seriously considering whether the security of a fixed rate with a federal loan is worth it.
Ignoring retirement savings
It is understandable, and even laudable, to want to repay student loans as quickly as possible, but undertaking an ambitious repayment plan at the expense of completely ignoring retirement savings isn’t wise.
“A recent report from Morningstar Inc. subsidiary HelloWallet found that someone with a starting salary of $50,000 who pays off a $20,000 student loan ahead of schedule but skimps on retirement savings—by contributing only enough to an employer-sponsored 401(k) plan to receive half the employer’s 3% matching contribution—will wind up with a net worth at age 65 that’s $150,000 below where it would have been had he or she contributed enough to receive the full match and repaid the loan over a longer period, by making the minimum required payment,” states The Wall Street Journal Reporter Anne Tergesen in an article from Sep. 2016.
Not making automatic payments
One of the best steps you can take to make sure the student loan repayment process goes as smoothly as possible is to set up automatic payments. Some people delay setting up automatic payments because they have ambitious goals of paying more than the minimum each month, and want to wait to see what their bank account balance is before determining the payment amount. While it’s great to pay more when you can (as long as you aren’t sacrificing retirement savings), it’s not worth the risk of making a late payment or missing a payment all together. Setting up automatic payments that you can afford each month is the safest bet, and if you find you have extra money after the payment is made, you can always make a supplemental payment.
Paying for assistance
If you are having trouble affording your payments, you may have been tempted by ads that offer to help you figure out your options for paying on a different schedule or seeking loan forgiveness on your federal loan.
“If someone asks you to pay for these services, you are not dealing with the U.S. Department of Education or our loan servicers,” according to Nicole Callahan, a Digital Engagement Strategist at Federal Student Aid in an article for HomeRoom, the official blog of the U.S. Department of Education. “We don’t charge application or maintenance fees. If you’re asked to pay, walk away (or hang up).”
The cost of an education that can help you start a profitable career or get a better job in your current field is money well spent, and you can make sure you are getting the best return on your investment by avoiding these four common student loan mistakes.Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.