Student loans can be a necessary evil; depending on how intense your study is and how long the course lasts, it can be impossible to finish a degree without incurring some level of debt. While you could choose to work part-time through your degree, your grades will likely suffer as a side effect.
Thankfully there are many options to fund your college years and get your career off to the best start.
Scholarships and Grants
Before taking on a student loan, look to see if there are any scholarships or grants that can give you a leg up. Scholarships and grants take a lot of up front work, but are essentially free-money to help you through your studies so you can focus on learning and not stressing about your finances.
Obtaining a scholarship can be quite similar to a job interview so make sure you meet the eligibility, apply on time, and are ready to present your best self.
Scholarships generally have on-going terms to meet as well, like being a full-time student, high GPA, and, in some cases, community service.
Federal Student Loan Options
Federal student loans are your next best bet when you can’t obtain a scholarship or have already exhausted your options. Federal loans typically have lower rates than private loans and have various benefits like student loan forgiveness and income-driven repayment plans.
Federal loans also come with fixed interest rates, whereas private loans may have variable rates. While a private loan may appear a better deal to begin with, this can rapidly change.
Federal loans come with strict borrowing limits which may seem like a downside, however, it can encourage you to analyze your budget and make sure you aren’t starting your prime earning years in even deeper debt than you need to be.
So When Should I Take Out a Private Student Loan?
When all your other options are exhausted.
Private student loans are there to fill the gap between today and graduation. Private lenders are often willing to lend higher amounts that you can get through a federal loan, but of course this comes at a cost of higher rates and higher fees.
You can get a small bit of relief, if you earn less than $80,000 while studying at least half-time you can claim the interest on your loan as a tax deduction – up to $2,500.
Just remember, whether you take out federal loans or private student loans, they are yours for life. Even in bankruptcy your loans stay with you. The lender may be willing to put a pause on repayments, but they will still be accruing interest. More likely the lender will start garnishing your wages to take control of the repayments.
If you find yourself in a position where you need to take out a private student loan, ensure that you have exhausted all other options first. If you do take out a private loan, pay it down aggressively as soon as you start earning.