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Few things put a damper on future plans like student loans. After all, the amount you borrow for college can impact nearly every aspect of your post-college life including where you can afford to live, how much money you can save and the type of job you can accept.
You may be able to sign up for an income-driven repayment plan or extended repayment plan to lower your monthly payment, but other than that, you’re stuck. Since student loans are almost impossible to discharge in bankruptcy, you need to pay them back.
The good news: If you’re savvy and willing to make sacrifices, you can reduce the amount you borrow for school and lessen the impact of repaying those loans. "Your Federal Student Loans," a booklet from the Department of Education, lists some of the best ways to reduce the cost of college, including:
Considering a less expensive school
Searching for more scholarships and grants
Cutting your spending
Buying used books instead of new
Eating on campus instead of dining out
This advice can help you save money as you attend college. The most important thing to remember about borrowing for school is you’ll have to pay back every dollar you borrow plus interest. So every dollar you can save is worth more than a dollar later on.
One particularly important piece of advice from the Department of Education is “change your spending habits.” This is because, in addition to paying for tuition, books and room and board, student loans not paid directly to your school typically come as a check or a direct deposit to your bank account.
With your student loan money in the bank, you may be tempted to buy whatever you want. After all, nobody watches to make sure you use your loans on tuition, room and board, books and education-related transportation expenses only.
As you push to borrow less and reduce your student loan payments in the future, here are six things you should never spend your loan money on:
You don’t want to still be paying for a spring break to Cancun in your 30s. If you want to travel during college, save the cash before you go.
Dining out is an expensive habit, but it’s worse when you use borrowed money. Only dine out for an occasional treat, and make sure you have the money set aside to pay.
Clothes have terrible resale value. They’re worth almost nothing once you bring them home. Don’t compound the problem by using student loan money and paying interest on your clothing purchases.
Boozy weekends with your friends may be a rite of passage for college students, but you shouldn't buy beer with student loans. If you plan to hit the bars, make sure you are earning money and set some aside ahead of time.
While it’s tempting to use student loan money for small purchases, small sums of cash can add up. Spending $10 here and $30 there can add up to hundreds or thousands of dollars.
If you need an emergency car repair or have a medical bill you can’t pay, you might be tempted to use your student loan money. But if you rely on student loan funds to cover surprise bills, your borrowing could get out of hand.
Borrowing less can lead to lower monthly payments in the future. But how will you live the life you want during college if you don’t have cash to spare?
In addition to keeping costs low, the Department of Education recommends working part-time while you’re in school. With a part-time job or seasonal work, you can build up a stash of cash to use for living expenses while you study.
It can also help to start budgeting early. Instead of spending without a plan, figure out how much you’re earning and how much you can afford to spend on “fun” or miscellaneous purchases every week.
Last but not least, don’t leave your student loan money in your bank account where you can easily spend it. You can make payments toward your student loans while you’re in school, so consider that option. If your loans are unsubsidized (meaning they accrue interest while you’re still in school) making payments while you’re in school can cut down on the amount of interest you pay on your loans as well.
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