Some people think that when they get financial aid in the form of a student loan, they can now go to a school they couldn’t afford before.
Here’s what’s wrong with that idea. Simply put, when you use a student loan to help pay for college, it’s going to cost you more than if you didn’t borrow that money. Often much more.
This example shows you why loans cost you money:
Loans don’t lower what you pay, they just delay it.
Obviously, Payment Plan #2 costs more. That’s because taking out a loan doesn’t lower what you have to pay, it just delays paying it for for a while. Only with a loan, you not only have to repay the amount you borrowed, you also have to pay interest on that amount. So your costs actually go up.
Of course, there’s no question that college does cost a lot of money. So for most students –between 60% and 70% of them, in fact – taking out a loan is a necessity, because they and their families don’t have that much cash available.
The message: be careful – and don’t get fooled into thinking loans save you money. They just let you spread out the amount of time to make your full payment. And in return, you have to pay out more in fees and interest.
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