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To Borrow or Not to Borrow that is the Question

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Student loans are a wonderful and useful tool that you can use to support your college education. The problem is, many students and parents are borrowing to fill in their lifestyle gap and that is not what it was meant to do. Do not borrow more than you absolutely NEED to go to college. On the other hand, you need to borrow enough that you can reduce the hours you work while you are in school. Studies show that if you work 10-20 hours while you go to school, your grades will be better, but it you work more than 20 hours a week and attend school full-time your grades will suffer.

Going to college should be a planned event. That means you apply early to the college and you do your FAFSA in January or February. It means you need to set aside several hundred dollars from your financial aid check to purchase the next semester’s books and supplies. That way you start class with all the materials you need to be successful.

When you get your financial aid check and begin to spend it, ask yourself if this is a purchase that is helping you get closer to a diploma. Food and toothpaste fit in the yes category, but an X-Box does not, especially if your financial aid strategy includes student loans.

Before you borrow, do a personal budget. If you aren’t sure how, there are several free budget tools on the Web. Do a search of Free Personal Budget Tools. You can’t realistically figure out how much money you need to borrow if you don’t know how much you spend. When you get the figures together take a hard look at your spending. How much of it is things you ‘want’?  How much do you really need to have?  Rent, gas, utilities and groceries are part of the need to have category. A 4G network, I-Pad 2nd generation, or pizza 4 nights a week, are more of the ‘want’ category.

It’s important to tighten your belt and borrow less if you can. You do have to pay it back. Do you know what murderers and loan defaulters have in common?  There is no statute of limitation on either. The federal government will pursue you for the rest of your life. Bankruptcy will not help. Student loans are not forgiven as part of a bankruptcy. Whatever you borrow, you are expected to repay.

If you borrow too much, or your first jobs pay too little, you may find yourself struggling with the payments. DON’T just bury your head in the pillow and hope it will go away!  It won’t. Contact you lender or the servicing agent who has your loan. Their contact information should be on the letters you are getting from them. Tell them your situation and ask what your options are. There are several different strategies available to avoid defaulting.

If you choose to do nothing, your default will be reported to the credit bureaus. You will ruin your credit and a chance at a really good job. The government will take your tax refund or your lottery winnings. Their arm is pretty long.

Think before you borrow. Could you/your parents get by without a loan?  If you could pay for college by tightening your belt, without charging to a credit card OR working full-time while going to school full-time, then I recommend you try that. Talk to your financial aid office staff. What are their deadlines for applying for a loan?  Can you change the amount you asked for within the academic year?  What is the process?

There have been a lot of articles in the media about student loans and the amount of debt students are incurring. Student loans are a great supplement to grants and work study, but they need to be used wisely and with a little bit of caution.

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