There is no doubt that we all have our own little dreams for the future. As young students at school we will decide in what direction our future holds and start working for it with all our strength and enthusiasm. Now that we have decided what our immediate future course of action is going to be, this is the time that we have to think very seriously on the financial implications of it (both incoming and outgoing) which is going to be a crucial factor in the effective execution of our action plan and determination of where we are ultimately going to end up.
So let us plan for it now at a rather early stage and the steps enumerated below will be a guide to you as to how to set about it immediately -
Conduct a research to ascertain the cost of your education in your already chosen profession year after year until you graduate.
Do a little research and prepare a schedule of costs pertaining to the other expenses connected with your education such as tuition, books, computer, board and lodging, etc. Remember to add at least another 35% - 60% (as you think fit) to the total to offset the rapidly increasing prices of the said services and to adjust for the normal inflation over the next few years.
Add (1) and (2) to get the estimated total cost of your entire education Next step is to consider whether you can afford this massive cost.
At this stage take stock of your available financial resources, such as any grants or scholarships receivable, savings deposits, income from part time work or vocation and any income from stocks, shares and investment, plus any contribution from parents.
Deducting (3) from (5), you will now have the deficit to be financed through one or more student loans. Do a research of the leading and prominent lending institutions and agencies disabusing loans, federal as well as private.
Visit their websites and find out about entry requirements, types of loans available, current interest rates, whether fixed or variable depending on the type of loan, terms of repayment including when repayments start and any options available for deferment etc.
You may also seek advice and assistance from your school and relevant financial institutions and agencies who offer free services of professional advice and opinions on student loans with regard to the best course of action to be taken in selecting the lender and type of loan to be taken in each case.
However, you are advised to act with caution on certain advices and recommendation received, since some advising bodies themselves are in receipt of commissions / kickbacks from certain student loan lenders. From the information in (7) above we can ascertain the least costly single or a combination of loans that may be taken to adequately finance your education program year after year while minimizing costs and also to keep the monthly installment at an affordable level when payments fall due.
How do we fix our monthly payment at an affordable level? This implies that we should not only research the costs but also as to what our salary would be once we graduate. At this point we can make a fatal mistake by estimating our initial salary after graduation at a higher level than the actual - due to wishful thinking or misinterpretation of facts and figures obtained.
For example, we would have heard that a Software Engineer (which let’s say is your chosen profession) could be getting anything over $ 100,000 per year. But we would have missed the point that it was the average salary received by a Software Engineer with about 5 years experience. But in our case, as a just passed out engineer, it may be only possible to demand a salary of around $ 50,000 a year.
Due to this error, we may find that with an actual salary of around $ 4,500 a month, we are hard pressed to pay around $ 500 monthly on our educational loans since we have other monthly installments on our rented house and hire purchase installments on the Car and TV to make in addition to an array of other monthly bills for living expenses.
In (9) above we have our monthly income on first employment almost immediately after graduation and from (8) above we get the estimated monthly installment we are likely to be called upon to pay after first employment. Match these two figures to ascertain if you can afford to pay this installment comfortably and without undue strain on your other essential monthly requirements. Well if you find that you can manage to meet the monthly installments, then it is well and good. But if it seems impossible, then what can you do now?
You can try working it out on the reverse basis. That is, start with your estimated monthly income, which should be more or less a reasonably correct figure, and then work backwards.
See whether there are any corrections needed to the figures obtained under (1) and (2) in respect of your education program costs and other connected costs comprising of tuition fees, board and lodging etc. respectively. Make the necessary corrections (if any) and adjust the totals of (1) and (2) in (3) accordingly.
Presuming that there were no significant changes in your estimated monthly income as well as in the total cost of to be financed, then we are left with the inevitable presumption that our computation of estimated loans to be taken in (8) above for funding the cost of education is on the high side.
The estimated excess provision is more likely to be a result of a selection of higher interest bearing loans for financing your education program. If this is the case, you will have to go for outright grants and more low interest bearing loans and less private loans for funding your college education.
Once you have a feasible budget prepared in advance in this manner, you will find it much easier to organize your actual loans in a similar pattern or try to even improve over your budget when the time comes to take the actual loans.
It is hoped that the above 14 point guide will be of help to you to workout in advance as to what type of loans to take and when and to what amount so as to keep your financial costs and monthly installment payable as low as possible and at affordable levels.