Students Loans Programs

A formula to avoid finding yourself on financial disaster after you graduate

Have you heard the horror stories told by those who could never repay their private student loans?  Or perhaps has it happened to you and you already know firsthand?

You decided to go to college to study for that precious degree and, like everybody else, you took out a loan, or several loans, to pay for your life as a student.

You graduated and, thanks to the deferment clause in the credit contract,
you begin to pay right after graduation. The problem is that you don’t have
any income because you don’t have a job.  And if you are not lucky enough to find a job soon so that you can begin repayments, you will find yourself bankrupt.

On top of this, your fiancé, to whom you thought you would be getting married, on hearing of your financial troubles decides to break off the relationship just because he or she does not want you to bring to the marriage the debt you accumulated while you were a student.

Now, what was the problem that led you to this situation?

Choosing the wrong career? 

Miscalculations on the real amounts you needed to pursue your studies?

 Spending money on unnecessary things?

Not  analyzing the implications of asking for a student loan?

There may be a little bit of each, but basically there is one significant problem:  you were borrowing money without any backup,  only  under the assumption that, after you graduate, you would be able to work and repay the credit. 

It is this wrong assumption that leads many graduates to find themselves in default with their credit.

When we borrow money for our studies, or for any other purpose, there is one thing that we need to understand:  we will have to repay it and we need to plan for that repayment, otherwise we will find ourselves in a bad economic situation.

Planning on how you will repay your student loan is crucial to assure that  you will be able to repay it in full.

Now you may ask yourself:  how does a student plan the repayment of their student loan?  You have to consider several factors in order to formulate your plan and these are the most important to consider:

1. Amounts of money borrowed.

2. Deferment period, if your contract with the private loan company included one.

3. Date to start repaying.

4. Number of monthly payments until the total pay off.

5. Interest rate all along this payment period.

6. The length of time you will be a student.

7. Income needed while you are a student.

Including in your plan all the information above will help you calculate what you need to have as income to be able to repay the loan after you graduate.
In normal everyday situations we borrow money on the basis of a present
income or assumed income in the future. We do not go and borrow money
without any basis of income. That is, you cannot borrow money just because you need to pay for something.  

Your studies and the loan to pay for them are like an investment for a future business. When you start a new business and you borrow money for it,  you take into account the earnings you will have that will also provide for expenses.

Since studying is not a business from which you can profit so soon,  your return on investment is deferred. Consequently, you need to know how you are going to face expenses before your career becomes profitable.

But, if you don’t have any income when you finish your studies, and you don’t know when you will have a job, or the first job you have is not enough to pay for the student loan, it is unlikely that you will be able to repay your loan.  Interest starts to accumulate and could reach a debt that may be double the amount you originally borrowed.

So, how do we avoid getting into this situation from which many have not been able to get out of?  When you borrow money you have to count on all the following:

a) A  job that you would start just a short time before your graduation. A job that will at least give you some income to provide for your first months or year as a new graduate who is settling down in their new profession.

b) A minimum income that you should have had when you asked for the loan and that will help you cover your everyday expenses while you are a student. Perhaps a job that will provide with a small income or pocket money during your years as a student.

c) A repayment plan that will give you a precise idea of how much income you will need to have when you start repaying your loan.

The economic problems graduate students get into with their student loans are mostly due to bad planning in the way they take the loan and plan the repayment. If you believe that you can take a student loan without planning how you will repay it, you have a recipe for disaster in your future finances.

A clear understanding of how each of the elements above play a role in being able to pay a loan off is fundamental to organize your strategies and make the most effective plan to repay your student loan.

Have you started college yet?

Are you going to ask for a private or federal loan? 

We are all interested to hear from you how you plan your budget after you get a loan and your strategies to provide for the repayment.  

Your comments are welcomed.