borrowApplying for student aid can be daunting enough, but the decisions in how much of the approved aid to actually take can be tricky. Sure it is tempting to accept all of the money that is offered by your student loan lender, but does that mean you should actually borrow that much? Chances are, probably not.

Bigger Not Always Better

If you are approved to borrow $22,000 and your total costs are only $18,000, where do you spend the remaining $4,000? In many cases, on living expenses and frivolous items. It isn’t uncommon for college students to use the extra loan money to pay for their rent, groceries, and entertainment. This is a very costly mistake? When you  live off of loan money you are borrowing on a zero return-on-investment entity. In other words, paying for rent out of borrowed money is never going increase your chances of earning more. Borrowing for your education does give you a return-on-investment by increasing the amount of money you can earn later. Bottom line: borrow only what you need to cover tuition, books and your meal plan (if you live on campus).

More You Borrow, More You Owe

It’s obvious that the more you borrow the more you will owe, but students often fail to consider what this will truly mean once they graduate. The higher your debt balance the  longer it will take to repay, not to  mention how much more you will end up paying in interest charges. Also, the higher your debt balance the higher your monthly minimum payment will be. Taking into consideration the fact that most new graduates won’t be making as much as they predict/hope, borrowing too much can put an immediate strain on finances. This is typically how the student loan debt delinquency cycle starts. Bottom line: know what you can afford to repay monthly after you graduate before borrowing while still in school.

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