The latest statistics about American student loan debt is unnerving, to say the least. There are 45 million people currently carrying student loan debt and the average borrower from the Class of 2017 graduated with an average of $28,288. Is this what’s in your future should you decide to get a student loan to further your education? It doesn’t have to be.
Taking the time to understand your financial situation, your true potential income after graduation, and the full scope of the loan terms are all crucial to paying down debt on time and in full. Unfortunately, many students may not have a clear understanding of what a student loan entails before signing the dotted line. While pursuing higher education it’s crucial to understand the debt that can come with it.
In-School Repayment Options
While attending college, repayment options on student loans come in many forms. It’s always a good idea to get a head start on repaying your student loans but making full payments during school might not be feasible. If this is the case, there are typically alternatives.
Pay in Full During School
Paying off student loans while in school can set you up for financial success in the future. Not only will you get a head start managing money and paying down debt, you’ll have less of an uphill battle paying off these loans post-graduation.
Pay Interest Only During School
If you can’t meet a full monthly payment on your federal student loans, you may be able to request an interest-only repayment schedule throughout your college tenure. This means, you won’t be responsible for repaying the principle, but you will cover the interest accumulating while you study.
Defer Repayment Until Graduation (Grace Period)
For some students, the most important focus during their college degree is the degree itself. They need to put all their energy into school work and graduating. Splitting time between a part-time job and school just to meet a repayment schedule may not be possible. This is when the deferred payment option makes a good choice.
What You Should Know Before Accepting a Student Loan
Student loans can not only make or break a student’s educational future, but it can also significantly burden someone post-graduation. Do you know what you are signing up for?
Know Your Expenses
Even if you are still in school, working with a detailed budget can help you keep track of repayments. If you know how much per month you need on living expenses, you’ll be able to adequately prepare for the debt repayments as well.
Know Your Monthly Payment
When you start making payments on student loans, don’t kid yourself on the monthly amount owed. The average monthly payments are usually a few hundred dollars, can you afford it?
Know Your Financial Future
Many colleges have gotten into trouble for the way they have advertised post-graduation job markets. For example, just because your school states that 90 percent of graduates are hired within the first six months of graduation, doesn’t mean it’s always true. Dig deep into regional sources on job statistics for your career path.
Post-Graduation Student Loan Refinancing
Once you’ve graduated and have a foot in the job market you may be in a drastically different financial state than you were when you first signed up for your student loans. You may be much better off with a new job and a good salary. Alternatively, you may have an entry-level type salary or struggling to find any income at all.
Student loan refinancing is worth considering for both scenarios. Refinancing pays off all chosen loans (federal and private) with a single new loan. This means one monthly payment and one single interest rate. So long as you continue the repayment plan, refinancing can save borrowers thousands of dollars in interest over the course of the loan.
If you expect to have the ability to pay down your loan over a shorter term, you may benefit from a renegotiated and lower interest rate. If you expect challenges, you can also extend the terms of your loan and have lower monthly payments.
Keep in mind that once a federal student loan is refinanced, it becomes privately held. Private student loans typically have fewer protections for borrowers should they enter a period of financial instability. Before choosing to refinance, shop around and know your options.
Andy Kearns is a Content Analyst for LendEDU and works to produce personal finance content to help educate consumers across the globe. When he’s not writing, you can find Andy cheering on the new and improved Lakers, or somewhere on a beach.