Debt Management and Smart Borrowing
Loans are important to many of our students, but we try to encourage them to take in loan only what they need. The goal of debt management counseling is to encourage wise borrowing. Remember that loans do have to be repaid. If you take student loans, be sure to read carefully all information provided about each loan before accepting it.
Following are some excerpts from a variety of publications and reminders about smart borrowing and debt management.
The following is taken from the CUNY Booklet given to Perkins Loan Borrowers, Your Federal Perkins Loan: A Reference Guide of Your Rights, Responsibilities and Obligations, 2003 edition. The same basic principles [although not the details, and the loans may stay as separate loans] apply generally to all types of student loans.
- Before Borrowing Consider These Facts
Minimum Monthly Payment: Your minimum monthly payment will be $40. If you borrow in excess of $3770, your payment will reflect the amount it takes to pay off your loan in ten years. For an easy way [on Perkins Loans] to determine the amount of your monthly payment, use the following simple formula:
Take the amount you owe and divide it by 1000. Multiply the number you get by 11. For example, if you borrow $ 5,000.00:
$5,000.00 / 1000 = 5
5 X 11 = $55.00
Your monthly payment will be $55.00.
- Remember, this is a loan and must be repaid. Don't get in over your head. Borrow responsibly.
- How much can you afford to borrow?
Every borrower is different and the amount you can afford to repay in student loan depends on many variables:
- Anticipated entry-level salary for your profession
- Take-home salary, i.e., what your net salary after taxes and deductions may be
- Other outstanding student loans
- Cost of living
- The number of people you support
- Other debts, i.e., auto loan or mortgage
- Before you borrow, take a few minutes to complete the budget sheet [not included here] on the following page. Think about what you can really afford to borrow. You may find more information about entry-level salaries by going to the Occupation Employment Statistics homepage at http://www.bls.gov/oes.
- Budget Sheet [not included here]
This income and expense record is intended to help you develop a budget. Complete this sheet by filling in the appropriate dollar value next to each category that pertains to you. You do not have to hand in this sheet. Keep this for your records and reference.
When you complete this sheet, think about what you can really afford to borrow from the FPL program and what you will have to give up to pay the bill.
The following is taken from the "Budgeting Your Money" section of the Direct Loan Exit Counseling Guide for Borrowers, September 2000 edition.
...One significant aspect of successfully managing your money after leaving school is repaying your student loans...
- Keep all of your loan papers for all your loans, from all schools, together. Keep track of the billing service for each loan, when each payment is due, and the provisions of each loan. Notify the appropriate billing services of any changes of address OR any problems you may have in meeting your obligations.
- If you are considering student loan consolidation--a process through which you might be able to combine all of your student loans into one loan--look carefully at the provisions your individual loans have, and evaluate what you will lose and what you will gain. Look especially at interest rates, cancellation provisions, and deferment provisions. The following warning is from the Perkins Loan booklet:
...If you consolidate your Perkins Loan you will lose all the benefits of the Perkins Loan Program, including cancellation provisions such as teacher, law enforcement, family services.... Once your student loans are consolidated, they can not be unconsolidated. Be careful! Consolidation is final.