Wednesday, August 20, 2014

5 Financial Aid Mistakes to Avoid At the Beginning of a Semester

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Did you know you can decrease your student debt burden significantly before your semester even begins?  Save yourself some money and a palm to the face by avoiding these common mistakes.

Mistake #1:  Avoiding the Financial Aid Office Like The Black Plague.  The financial aid office is there to help.  Yes, lines can be long and the discussion can be tedious, but it can help you save.  Have them make sure your filings are correct – you don’t want to take out extra loans if you don’t have to.  Use them to help you select the best loans available with good terms and competitive interest rates or no interest rates at all.  If you have questions about your terms, ask them for clarification so you can be completely informed about what you’re obligated to do.

Mistake #2:  Accepting the Tuition Bill As Is.  At most schools, you are able to opt out of some charges if you are uninterested in utilizing the programs.  For instance, the gym, computer lab, and athletic events are all things charged under the cost of tuition, and you’ll have to pay whether or not you use them unless you ask to opt out.  If you own a computer, prefer to run outside, and enjoy theater instead of sports, then why pay for the next 15 to 30 years of your life on things you won’t use?  By opting out, you can borrow less money.

Mistake #3:  Celebrating with Your Reimbursement Check.  It’s probably the biggest check you’ve ever received in your life to date.  Thousands of dollars just for you?  You’ll want to offer to buy the next round at the bar, but you shouldn’t.  Do you really need all of that money for cost-of-living?  Can you budget better, get a job, take your bike to classes, anything to reduce the cost-of-living to less than what the school estimated?  If so, you should return the check or whatever amount of the check you can do without.  Again, borrowing less money at the start will decrease your debt burden upon graduation.

Mistake #4:  Ignoring Interest Payment Bills.  Maybe your terms allow you to forgo your interest payments while you are in school, but you shouldn’t just crumple the bill up and toss it into the trash.  Interest payments are important to pay as soon as you can because it is likely that your loan agreement has compound interest.  What that means is that for every interest payment you miss, it accrues (or adds) to the original loan amount.  However, when the next interest bill is calculated it is off of that new outstanding balance.  So for every interest payment you miss, the larger the next interest payment is and the larger the outstanding balance becomes.  As you can imagine, the outstanding balance can spiral out of control pretty quickly and, thus, has caught so many new graduates off guard in the student debt crisis we have today.

Mistake #5:  Throwing Out Loan Information.  You’ll probably receive a ton of mail with statements and terms, but do not throw these things away!  Keep a file or scan them or ask for your documents to be sent electronically and organize it all on a computer file (that you back-up).  You’ll want to keep track of how much you borrow, the terms of your agreements, who your lenders are, and who your servicers are (which can be different than lenders).  This information will allow you to update your lender and/or servicer of any address or name change and help you avoid default when it is time to make repayments.

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