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Consider the implications of student loans


Monday, November 26, 2012
Finding ways to finance your college education can be the most frustrating and frightening aspect of an otherwise exciting process. Do you have what it takes to win a scholarship and which ones should you apply for? Are you aware of all the important deadlines for filing the FAFSA, state and college financial aid forms? Will you need private loans in addition to federal grants? After you’ve done the math, if you find that you will needs loans to finance your education, make sure you consider the long-term financial implications of borrowing.

Credit scores
Many young people and their parents worry about the impact that student debt can have on their credit scores. This figure, which many financial institutions use to determine the risks associated with lending money to an individual, can be affected by things such as defaulting on student loan repayments. However, according to Fox Business, taking on student debt does not have to have negative implications.

"You are not doomed to a horrible financial future simply because you have a high amount of student loans," Manisha Thakor, chief executive officer of financial consultancy MoneyZen Wealth Management, told the news source. "What you have to do is manage them responsibly."

In fact, according to author and credit expert Beverly Harzog, repaying student loan installments on time can actually help young people build their credit score. Harzog recommends borrowers incorporate monthly student loan repayments into a detailed budget, and that doing so is one way for young people to learn the importance of financial responsibility.

Implications for home buyers
Although it may be many years before you start thinking about buying your first home, you should realize that student loan repayments can have a considerable impact on whether you can afford to get on the property ladder. While the amount of student debt borrowers take on is dependent upon a variety of factors, some students leave college owing significant sums of money. According to The New York Times, students' monthly loan installments can often equal or exceed those of mortgage payments.

Kari Sweet-Kostopolis, an assistant vice president at financial services firm Jersey Mortgage Corporation, told the news source that many students' mortgage applications are declined as their level of student debt pushes their financial burdens up considerably. Most mortgage lenders adhere to policies that limit the total amount of debt an applicant can possess, and in some cases, sizable student loan debt can disqualify hopeful first-time homeowners.

Before you make any decisions about assuming student loan debt, you should use the financial aid calculator on the prospective schools' Web sites to determine your monthly repayments of student debt. Be realistic about how much debt you are willing to carry and choose your college accordingly.ADNFCR-16000756-ID-800911908-ADNFCR

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