When you are in college, most people take out student loans without thinking too much. You have to go to college, so it never really enters your mind how you are going to pay for the loans after you graduate. Here are some tips you should think about while attending school and after you graduate:
While in school – Student Loan Advice:
This may surprise you, but maximize the amount of loans you take out instead of using credit cards. Why, you may ask? Do this because after you graduate, you can deduct the interest from your student loans but you can’t for credit cards or other types of debt. Also remember that student loan interest rates are usually much cheaper than credit cards or other forms of debt, then it becomes obvious why you should use student loans first!
Of course be prudent when borrowing money from student loans, however remember you will probably get a job out of college, but you will not have as much TIME to spend your money. There is nothing wrong with using student loans for borrowing from your future income when you have a job and enjoying the money in your college life now, just be responsible about it. Don’t take out astronomical amounts, and don’t use credit card debt in addition to students loan debt to live a lifestyle you can’t afford.
After you graduate – Student Loan Advice:
Consolidate and consolidate all your student loans into one large loan! Usually schools obtain many different loans from all sorts of companies on your behalf. After you graduate, you can never keep all these loans straight and you will definitely miss payments that will hurt your credit rating. This will happen since you will move, etc. or just forget to pay one of them for a month. The smart thing to do is consolidate all your student loans into one payment and have it deducted out of your bank account automatically. Usually, companies will give you a big discount on the interest rate if you consolidate and then allow automatic payments from your bank account, so choose this option. Think about it, you will never have to think paying every month or worry about missing payments. You will also be building great credit history in the process as you pay your loan off on time every month. This credit history will become very valuable as you buy your first car and home, since you will be able to get much lower interest rates thanks to your good credit history.
Don’t forget to deduct your student loan interest expense off your taxes. Most people forget this, be smart and take advantage of this deal by the government. Unless you make over 65K per year, you can deduct the full interest amount off your taxes for up to 5 years after you graduate. Current interest rates on student loans are 5%, plus you can save an addition 28% off you taxes, so your effective rate can be as low as 3%. This is a great deal and you should take full advantage of it instead of paying credit card companies much higher rates.
If after you graduate you take on more debt such as car loans, credit card debt, etc. remember to always pay these off first and then pay off your student loans. Again, your loans usually carry the least amount of interest and are tax-deductible, so pay off you student loans last after paying off credit and auto loans first. (unless of course you have 0% financing on anything)