4 Things Teens Absolutely Must Know Before Taking Out a Student Loan
A college degree today is equivalent to a high school diploma 50 years ago. That is to say it’s an expected, if not necessary, level of education needed in order to secure a job in a number of professional fields.
The one major difference between high school and college is, of course, price. But given the importance placed on higher education, many families will do whatever it takes financially to ensure their child can earn that degree.
For most, that means taking out student loans. Before you go down that road, you should both be aware of the implications going forward.
These are four things you must know before taking out a student loan:
1. ALMOST 71 PERCENT OF BACHELOR’S DEGREE RECIPIENTS WILL GRADUATE WITH A STUDENT LOAN.
Your parents might not think loans are necessary since they weren’t when they were looking into college. According to a 2015 Wall Street Journal article, they’re right — less than half of students graduated with student loans two decades ago and about 64 percent did 10 years ago. These days, however, roughly three out of four students will need to borrow money to graduate.
2. THE AVERAGE 2015 COLLEGE GRADUATE WITH STUDENT LOAN DEBT WILL HAVE TO PAY BACK A LITTLE MORE THAN $35,000.
If you are one of those three students who will take out a loan, you can expect to be saddled with $35,000 upon graduating. That amount is more than double what borrowers had to pay back two decades ago, even after adjusting for inflation. So not only are more students taking out loans, they’re also paying more in loans.
3. ONLY BORROW WHAT YOU NEED.
It’s generally thought that the biggest loan you can get is the best. This is not true. A loan should strictly serve to cover the cost of college — this includes spending costs in addition to the basic costs of education, room and board. When taking out a loan, look at what the averages are and then apply yourself and your situation against those. This is one of several tips you should consider during the process.
4. KNOW WHAT TYPES OF LOANS ARE OUT THERE.
When applying for financial aid, loans are normally included in the school’s offer. Some student loans are made through the federal government, while others come from private sources like banks for financial institutions. Generally speaking, federal loans offer borrowers more ways to pay the money back along with a lower interest rate.
It’s wise to have a basic idea of what you’d like to study and what you hope to achieve while in college. You can figure it out while already there, but that’s a costly deliberation period. Getting some real world experience first either through a job, volunteering, or even traveling can help hone your interests and formulate a plan for a worthwhile college experience.
Remember to speak to someone in your desired college’s financial aid office. They’re there as resources to help you!
Discover more financial tips and tricks for teens at blogs.hrblock.com/category/from-the-block/dollars-sense/.
This article was written by DECA National Advisory Board partner, H&R Block Dollars & Sense. Learn more about H&R Block Dollars & Sense here. Read the March/April issue of DECA Direct here.