Borrowing Responsibly

"Borrowing Responsibly" submitted by SchoolGrantsfor Editorial Team and last updated on Monday 9th January 2012

Table of Contents

Responsible management of your student loans can be easy, help you establish a good credit rating and protect you from experiencing the negative impacts of too much debt.

Even if you don't complete your education or are unsatisfied with it, you still have to pay back your loan. Failing to pay back a loan will cause you to default, which can damage your credit rating for years.

Borrow only what you absolutely need to cover the cost of your education

Be conservative. If you have to borrow, accept only what's necessary to cover your college costs (tuition and fees, housing, meals, books, personal expenses, and transportation). Remember, when you get out of school and have to repay your loan(s), you will likely have other financial obligations as well -- such as a car loan, rent, utilities and other debts.

Master Promissory Note (MPN) for federal loans

This is your contract. It contains as many as eight pages of information on everything you need to know about your loan. The "prom note" is what you sign, and signing it means that you agree to everything that it says. Read it carefully. You can find more details here . . .

Disclosure Statement:

A statement that reflects the actual costs of the loan— including interest, any additional fees and the due dates of the first and subsequent payments and finance charges— to the borrower. To get a loan, the borrower must sign a promissory note that includes a “plain-language disclosure notice” describing the borrower’s obligation to repay his or her student loan. It is presented to the borrower at the time the loan is made. Your disclosure statement should include the name of your lender, guarantor, and servicer. You have the right to receive a disclosure statement that includes interest rates, fees, loan balance, and size and number of payments—before the loan repayment term begins. Also see: Borrowers Right and Entrance and Exit Loan Counseling For Undergraduate, Graduate/Professional Students

What does it mean to accept a loan?

Accepting the responsibility for repaying the money you borrow. It’s worth noting that federal laws make it nearly impossible to discharge a student loan through bankruptcy. Before you borrow, ask:

Repayment Options

Without question, you're borrowing money and you will have to pay it back. The most common method is to pay a level, equal amount monthly for the term of the repayment period. However, many lenders offer several repayment options. For example, some lenders offer repayment schedules that start with very low payments that increase over time. The repayment method selected impacts the total amount you repay, and that amount is outlined in your Disclosure Statement.

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