"Borrowing Responsibly" submitted by SchoolGrantsfor Editorial Team and last updated on Monday 9th January 2012
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 . . .
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:
Is the college or program a good investment?
You have the right to be fully informed about the college’s tuition and refund policies, academic and training programs, financial aid programs, faculty and facilities, and its graduates’ success rate in finding jobs. You also have the right to ask how many students complete their degrees at the college and how many of them transfer out.
Does your loan make good financial sense?
Are there jobs in your chosen field and how well do they pay? Some jobs and careers are more stable or higher paying than others. Learn more about hundreds of jobs, including required training, prospects and earnings, in the federal Occupational Outlook Handbook available at www.bls.gov/oco.
Are there other options?
Cut costs or check out other ways to pay for college, starting with those listed on page 9.
What is the true cost of your loan?
It usually costs money to borrow money. Make sure you know the true cost of your loan by keeping track of how much you borrow and how much you owe, including interest costs and fees. If you don’t make your payments on time, you may have to pay late fees and collection costs.
Can you repay it?
Before applying for a loan, determine how much you’ll be able to afford to repay. Estimate how much money you’ll need, what your monthly payments and other expenses will be, and what you can expect to earn after graduation. Borrow only what you need and can pay back. Also, keep in mind that the longer you take to pay off your loan, the more interest you’ll pay over the life of your loan. Find loan repayment calculators and more at www.edfund.org/EdWise.
What are your rights and responsibilities?
When you accept a loan, you accept legal and financial obligations that last until the loan is repaid. You’ll sign a promissory note, a legal contract between you and your lender in which you promise to repay the amount you borrow and agree to the loan’s terms and conditions. Before signing, be sure you understand all of your rights and responsibilities.
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.