Things to Think About Before Taking Out Student Loans

A Little Thought Now Can Save a Lot of Anguish Later

Deciding on college or no college, two year or four year, and local or out-of-state might have heads spinning for parents and their high school students. The challenge now is to figure out how to pay for the school that has been selected. Unless your child is one of the fortunate few who received a full academic or athletic scholarship, you could be facing some very serious money decisions. While student loans are a tremendous help, they should not be taken out lightly.

Here are a few things to think about before taking out student loans:

  • Who is going to pay for this? Somewhere along the way, many students began to assume that their parents will be shouldering the full load for their college education. While this is possible in some families, it is not the reality for most. Parents and students need to have a frank and honest discussion about who will be expected to pay for student loans once they come due. This shines a more realistic light on the amount of debt that should be accumulated, when compared to the budget of who will be paying for it.
  • What is our emergency plan? Most people tend to sign and co-sign for student loans without giving any thought to what could happen in the future. In some cases, though, these plans are shaken by a medical emergency or death of one of the participants. You need to have a back-up plan in place to pay for any accumulated student loan debt should any type of emergency arise. Does your family have an emergency fund, sufficient medical or disability insurance, or maybe even some life insurance that could cover these costs in the worst case scenario?
  • Can we really afford this? The family will need to get a good handle on what the repayment costs are for these student loans, and factor that amount into any future budget plans. If the parents are planning on repaying student loans, will there be sufficient flexibility in the family’s budget? If the student is going to be responsible for repayment, will the anticipated salary upon graduation be enough to cover these payments? If the answer is no, you have some difficult decisions to make as a family unit.
  • Can we borrow less? Some students tend to borrow the maximum amount available just because it is there, and then struggle to make payments. Try to borrow the minimum needed to cover your basic costs so you won’t be over-extended in the future. Parents may be able to earn additional money, or set aside money that would have gone towards their child’s daily expenses while the student is away at college. The student can set a firm budget, and try to earn additional money whenever possible. The more you can pay for out of your own pocket now, the less you will have to borrow and repay later.
  • What does our future look like? Even with the best of intentions, families are sometimes surprised when they don’t look far enough into the future when thinking about student loans. Parents who are close to retirement age need to think about putting money aside for themselves, and may not be able to help in repayment. A student may decide to attend graduate school, which could add an even greater amount to the debt burden.

Student loans are there for a purpose, and should be used. The only caveat is to use them wisely.