Manage Your Money
When it comes to higher education, student loans are simply a fact of life, says the Princeton Review. Most of us will need a student loan at some point on the road to our degree.
"Signing your promissory note is the beginning of your journey to managing your education financing," according to the review. "Understanding the costs and subtle intricacies of borrowing will help you to manage your debt."
The Review says it is best to learn these terms:
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Principal: The amount of money the lender loans to you.
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Interest: The additional amount that you pay to the lender for the privilege of using the money they are lending you.
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Accrue: The accumulation of interest.
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Capitalization: The process of adding accrued interest to the principal amount owed.
When you borrow money from a lender, the total amount you owe is higher than the amount you receive because of the interest, the Review says. For example, if you borrow $10,000 at an interest rate of 8.25 percent, your payments may look something like this:
Loan amount: $10,000
Interest rate: 8.25 %
Repayment period: 10 years
Number of payments: 120
Each payment: $122.65
Total amount repaid: $14,718
Loans are structured so that most of your initial payments go toward the interest you owe, rather than to repaying the principal, the Review says.
To avoid late fees and collection costs, be sure to make loan payments as scheduled.
Repaying your student loans is an opportunity to establish a solid credit record, the Review says. However, the opposite is also true. Not paying your student loans back in a timely fashion, otherwise known as defaulting, will cause you to have a bad credit rating and will limit your ability to qualify for other types of credit, including a credit card, a car loan, or a home mortgage.
Keep the following in mind:
Borrow only what you need
Keep track of what you owe
Manage your money wisely