Strict Dont’s

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How do I defer these loans?

You can defer the payment as long as you are a half-time student, while you are studying at a recognized post-secondary school.

Loans — DONT’S

Loans can be tricky, as they have a great amount of risk involved. Inability to pay or ignorance of monthly instalments should be strictly avoided, as it can lead to difficult situations and cause embarrassment. Hence, in case if you have a financial crisis, and you are not able to pay for the instalments, then you must consider calling your lender and explaining him/her about the situation.

  • In the case of financial and economic hardships, you must consider applying for the temporary deferment or the forbearance.
  • Temporary deferment will suspend the principal and interest payments for a specified period of time
  • Forbearance can also suspend your principal and interest payments, or reduce the amount of the monthly instalment for a temporary period.

Note- The lenders will consider your situation and come up with repayment plans, on a condition that you are honest about it and inform them in appropriate time.

Don’t Fall to the Trap, in your Quest of Getting More Financial Help

In case, if you feel that you can take education loan, and get away without paying off the loans, then you must absolutely skip the idea. Student loans are not dissolved in bankruptcy, and you must pay off the loan amount at any cost.

You might ask, there are many businessmen who take the loans, and get away without paying off the loans, thereby increasing the Non-Performing Assets (NPA) of the banks. But student loans are taken for education, not for luxuries, then Why is it so hard to get away from these loans?

It is indeed a good question. But, before we discuss the reason, let us understand-

What exactly does a student purchase when he/she applies for the student loan?

The student wants to purchase education.

This might give rise to another question – What value is my education degree to the bank?

The answer is that it has no value. When an individual takes a loan and purchase cars, houses etc., then they have a certain amount of value. In case, if the person fails to pay off the loan, then the bank can recover the money by selling the assets bought by the person.

But when it comes to education, the bank cannot sell your diploma to recover the amount. Hence, there is no alternative available, and a student must pay off the loan amount.

Don’t the private loans look scary now? You may now think that- “In order to get more financial aid, I can opt for federal loans”

After going through the above information, students might give up the idea of borrowing from private banks, and think federal loans are the best option.

Federal loans attract a nominal rate of interest and they are one of the best form of loans, but even the federal loans have certain drawbacks.
A student should not make the mistake of taking these low interest loans lightly, and make thorough calculations and planning. These debts can compound, and before you realize, they can take a toll on your living standard.

Applicants may think,” I don’t really spend a lot or I don’t care about money, and I can manage the debt.” Well, debt is not always in your control. Some students feel that they can manage to pay for the debt in the future, after they have an increase in their salaries. But the debt amount keeps on compounding, and suddenly you may find a very heavy burden of loan on yourself.

Students who want to apply for the loan might have another question in their mind- What happens when they fail to repay the money?

  • Not paying the loan amount can adversely affect the borrower, because he/she will be in the list of defaulters, and the list will be reported to the national credit bureau. This will affect the credit rating and make it very hard for the individual to get loans for at least 7 years.
  • The borrower might be forced to immediately repay the loan amount, including the interest.
  • The defaulter’s state and federal income tax refunds, including other federal payments may be withheld.
  • His/her income may be ceased
  • The defaulter might not be eligible to receive any state or federal loans in future
  • He/she may be barred to obtain a state professional license in his/her field.
  • The person may even be sued.

After learning about the risks associated with loans, you must be confused about the loans. But we recommend you to apply for the loans, and carefully measure the risks involved.

While taking the loan- you should set a limit, and fix a time frame, within which you plan to repay the entire loan.

A loan amount of $35,000 at maximum, with a loan paying term of 10 years is advisable. In this case, you are taking a loan of $8,750 per year. This will amount to a monthly instalment within $350- $400, depending on the interest charged. In most cases, the instalment is manageable. However, you might be tempted to borrow more, but we recommend you to keep the limit to within $30,000- $35,000. The amount you earn after graduating will make it easy for you to clear the loans, and hopefully you will be free from the burden of debt.

Managing other risks (Credit Card)

With the revolutionary change in banking, various features are ruling the market. Net banking and mobile banking are some common examples that have made our lives easy. The credit cards are widely used, and most banks entice customers to use their credit cards, or even draw money. Using your credit cards might attract a few benefits, like reward points. But, they involve equal amounts of risks.

Completely relying on credit cards can be extremely dangerous, and before you realize your liability may double or triple in very less time. There are many real life scenarios, where the use of credit cards has led to adverse situations. You might feel tempted to use them, but if you are financially unstable, then say no to credit cards. There are various other options from which you can consider raising money for your education.

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