The year before your first college semester can be a nerve-wracking time for any incoming student.
You have to make some big decisions about which classes you should take, find an awesome roomie who will be inseparable friends with all their belongings in tow (and no animals).
After you graduate, you’ll almost certainly require money. According to the Institute for College Access and Success’s 2017 graduate statistics, 2 out of 3 students leave school with debt.
Before you enroll in school, there are 10 things you should be aware of when it comes to student loans.
- 1. Consider a Federal Student Loan Before Applying For a Private Loan
- 2. Comparing Loans Is Necessary for Each Individual's Budget Since Everyone Has Their own
- 3. Consider Scholarships Before Applying For any Student Loan
- 4. Only Borrow What You Need
- 5. Find a Co-signer Before Applying For a Private Student Loan
- 6. Leverage The Income Payment Plans
- 7. Apply For Student Loan Forgiveness Programs
- 8. Regular Payments to Your Student Loans Can Help Raise Your Credit Score
- 9. There Is a Grace Period Before Making Payments
- 10. Know Who Your Servicer Is and When Payments Start
- Frequently Asked Questions
1. Consider a Federal Student Loan Before Applying For a Private Loan
When it comes to paying for your education, private loans are a great option.
But private loans are more expensive in the long run than federal loans, which means they will be more costly right now.
The interest rate on a fixed federal student loan for an undergraduate is 2.75% for the 2020–21 school year, while private student loans can be secured at rates ranging from 3.34% to 14.99%.
You won’t be able to consolidate private loans with federal loans if you take out several loans.
If you want to lower your monthly payments, consider refinancing your student loan at a later date.
2. Comparing Loans Is Necessary for Each Individual’s Budget Since Everyone Has Their own
But what should you compare it to? Here are 4 things:
- Loan costs throughout the term (such as origination charges)
- The qualifications you must fulfill to qualify for a loan, as well as whether you need to comply with specific enrollment criteria (such as half-time participation in your program).
- The APR of each loan is expressed in terms of the interest rate or price.
- The interest rate on your loan, as well as any client advantages, such as interest subsidies, alternative repayment choices, deferment possibilities, or forgiveness or discharge alternatives accessible.
“It is critical to understand the different alternatives and weigh them against your needs. Even if federal choices are available to you, you should still compare private student loan options.” Says Rubin.
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3. Consider Scholarships Before Applying For any Student Loan
Don’t even think about a loan application before applying for scholarships and grants.
Before, during, and after your education, attend as many college fairs as possible and fill out as many applications for money as you can.
Scholarships might help you save money on your education over time, allowing you to be more joyful in the future.
4. Only Borrow What You Need
Dependent undergraduate students can borrow up to $7,500 annually and $31,000 total in federal student loans while independent undergraduate students can borrow up to $12,000 yearly and $57,500 overall.
Borrowers on private loans must pay the full cost of attendance, which includes tuition, fees, room and board, books, transportation, and personal costs.
You are not required to make payments on any financial aid that you do not qualify for.
Set a budget by aiming for a loan that will cover 10% to 15% of your anticipated monthly income after taxes.
Assuming you expect to earn $50,000 per year and have a $250,000 student debt, your monthly payments should not exceed $279.
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5. Find a Co-signer Before Applying For a Private Student Loan
You may not be eligible for a private student loan if you don’t have enough credit history or meet the lender’s income requirements.
In that situation, you’ll need a cosigner to get private student loans.
A cosigner is a person (usually a parent) who promises to reimburse the private loan if you don’t.
It’s a significant duty, which is why selecting someone you can trust (and who trusts you) to qualify and be authorized for the loan might make sense.
6. Leverage The Income Payment Plans
Find a federal student loan repayment plan that works for you once you’ve earned your degree.
There are now a few sorts of plans available:
- The standard repayment plan: You pay a fixed amount each month until your loan is paid off, which is generally around 10 years.
- The graduated repayment plan: You pay a lower monthly amount at first, which gradually rises every two years until the loan is paid off (That generally takes around 10 years), If you’re thinking of entering an occupation where your salary starts low but should rise over time, this plan might be appropriate.
- Income-driven plans: You pay a fixed amount each month on these plans. These programs might take up to 25 years to finish.
Because private loans come from a variety of lenders, all you can do is to inquire with your lender about their payment plan alternatives.
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7. Apply For Student Loan Forgiveness Programs
If you work for the government or a qualified nonprofit, you may be able to get public service loan forgiveness if you have federal student loans.
There are also specialized training courses to help you pay off your debts, such as the National Health Service Corps (which is open to medical health professionals).
the Nurse Corps Loan Repayment Program, and the Teacher Loan Forgiveness Program. It’s always worth checking if you believe you might be eligible for one of these programs.
8. Regular Payments to Your Student Loans Can Help Raise Your Credit Score
After you’ve finished your degree, your credit score may not be where you want it to be (this is completely normal).
Your on-time payments provide lenders and credit card companies with a wealth of information that proves you’re a safe borrower, which is why this is the case.
Having a good credit score can be beneficial when applying for a mortgage, getting a credit card, or taking out a vehicle loan, so it’s sort of significant.
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9. There Is a Grace Period Before Making Payments
The majority of us do not expect to have a 6-figure career awaiting us after graduation, but the good news is that many student loans allow you to postpone payments for a while.
During school and for 6 months after graduation, you won’t have to pay anything on federal loans.
But your debts will begin to accrue interest from the moment you take them out. However, subsidized federal loans are an exception.
When your loan is repaid, the interest that was charged during the term of the loan is added to your outstanding balance.
You’ll have a larger balance when the repayment period begins if you owe more after your interest-free term ends.
If at all feasible, make payments while you’re in school to keep your debt under control.
It is not necessary to spend a lot of money. Even if you pay little amounts on a regular basis, it might help you repay your debt sooner.
10. Know Who Your Servicer Is and When Payments Start
If you obtain a federal loan, the cash will be transferred to the servicer designated by the US Department of Education to manage your debt installments.
If you have private loans, the servicer or another entity might handle servicing for you.
Tip: Before your first bill arrives, locate your servicer and ask any questions while you’re still in school.
They’re also the ones you’ll call if you have a payment issue in the future.
If you quit before the 6-month grace period has passed, your first bill will arrive 6 months later.
Frequently Asked Questions
Marie got her journalism degree from the University of California and is an award-winning financial journalist, who’s responsible for collecting and analyzing information concerning students and young adults within the world of finance.
Marie has spent her career with more than 5 years writing for unique media outlets like Yahoo finance, GoBankingRates, and CNBC. She also teaches them how to plan strategically to get out of loan debts easily.
Her goal is to educate students about the different stages in life that involve finances so they can get their money’s worth.