5 Student Loan Mistakes That Can Cost You
It is not uncommon to study and get a job either in Singapore or any other country around the world. The truth is that not all of us are lucky to get jobs immediately after campus. This brings us to the dilemma of repaying the student loan that you took to facilitate your studies. In Singapore, student loans have a favourable rate as they have a lower interest rate. Therefore, borrowing money is one option most Singapore students opt for when their parents cannot afford the high college fees.
However, how fast you clear your loan determines the actual cost of earning that degree. In as much as the student loans are associated with low interests, the amount multiplies quickly, and if you don’t find a way to start paying while still in school, you may see yourself having to spend a lot of money when you get a job. This article discusses some of the student loan mistakes that students should avoid to keep their interest low.
Borrowing more than you need
It may seem nonsensical, but all too often many students are tempted to borrow more than they need or fall into the trap of thinking that they need all the amount they’ve been approved for. Unfortunately, that money only wastes away to night outs, tours and mindless shopping sprees without really thinking how that amount will affect their loan rates and loan payoff. What you have to keep in mind before you take a student loan is that—a loan is a loan, whether it has a high interest or low-interest rate, was taken due to financial constraints, or you did not get a job after college it must be paid irrespective of the grounds.
If you really have to take a student loan, the best way to go about it is borrowing only the amount you need for fees. You can work part-time and repay the loan in small bits and have something for your upkeep. It will relieve some burden off your wallet when the time for payback starts.
Not bothering to pay small amounts while you’re still in school
One sure thing with loans is that the interest rates accrue on a daily basis. Therefore, looking for a few dollars every month to settle part of the loan can go along way towards lessening the weight of the whole loan. If you re-evaluate your budget each year, you can come up with a solid plan on how you will look for money to pay part of the loan. Singapore’s college education can be quite expensive, and from various developing stories, school fees are expected to go up this year. This means that you might need to take a bigger loan than you did the previous years.
While there are no penalties or payments needed on federal loans the whole schooling period or the grace period after you’ve graduated, the interest continues to capitalize. By the time you’ve completed your degree, your balance may have hiked by several thousand dollars in the interest alone. Just paying a few S$50 every month can make a huge difference in the amount you owe.
Not paying for retirement
It is quite crucial to become financially independent and debt free—which also includes saving for retirement. Students have CPF, where they can start saving for their retirement and build up a substantial financial cover as early as possible. As you repay that loan every month, be sure to set a certain amount aside for retirement. One common mistake that students make is prioritizing on repaying their student loans than saving up for retirement. Well, it is a good idea to keep off loans and clear it once and for all, but it is also essential to have a financial foundation as you do so. Analyze your budget to find out how much you can save and how much to put towards your loan clearance every month. If you manage to balance the two, consider yourself financially stable and independent.
Dragging out the loan payoff
Under the regular, graduated and income conscious repayment plans, borrowers can pay off their federal loans in ten years. With this type of program, your monthly payments are higher, but you will not need to pay as much in interest over the loan. Graduated and income sensitive plans can turn out to be more expensive since the payments can fluctuate. However, they are still less costly when you compare with other repayment options.
Opting for the income-based payment method or the pay as you earn plan, drops your monthly payments which can give you more breathing room for budgeting, but there is a price to pay. With these plans, the repayment period lasts for 25 years, which means that even if you are not paying much every month, you are stilling going to end up pilling out more interest. Subsequently, you may have to pay income tax on any amount of loan that will be forgiven after the 25 years are over. Who wants to owe the government for 25 years anyway?
Failing to apply for scholarships
In Singapore, it is not impossible for students to get scholarships as the country has well-performing students. However, many students often want to go the more relaxed way of taking out massive student loans to help facilitate their studies rather than investing some little time to apply for scholarships. If you do not have an idea where to start, there are very many people who can help. In fact, most scholarships are applied online. Therefore, you do not need specialized materials or tools to apply.
You can google some of the available scholarships or ask some of your former teachers if there are any. Any well-performing student can easily get scholarships from various institutions in Singapore and across the world depending on the student’s country of choice. Scholarships are way better than student loans as they settle all your tuition fees for good. You will only need money for expenses.