Student loan debt is a pressing issue that has skyrocketed throughout the last several years, and it’s currently at an all-time high. Over 45 million borrowers collectively owe around $1.4 trillion—a figure that has increased by 33% since 2014.
The soaring cost of college certainly doesn’t help. According to Experian, average out-of-state tuition at a four-year public university is $26,290. Around 54% of college attendees secure student loans to pay for their education, and borrowers who don’t complete their degrees generally face more difficulty paying off their debt.
Taking out student loans is intimidating—after all, borrowing thousands of dollars without understanding precisely what you’re getting into is rather scary. It’s imperative to educate yourself on acquiring student loans, the variety of loans available, as well as the next steps after you graduate. We’re here to help make that process smoother for you.
How to obtain a loan
Acquiring student loans is easier than one may think. However, there are significant things to consider before applying. First, you need to decide whether you want a federal or private student loan. It’s best to seek federal loans first and use private loans as a last resort. The two are somewhat related, but there are some differences.
Federal student loans are more accessible because credit checks aren’t required, and the application process is simple. Just fill out the Free Application for Federal Student Aid (FAFSA), and it informs you of loans you’re suited for. FAFSA also notifies you of grants or scholarships, so you potentially avoid borrowing money altogether.
Private student loans consist of a more complex application that frequently requires a credit check or a co-signer. Private loans should usually be considered a final option in the event you need a little more coverage that isn’t provided by scholarships, grants, or federal loans. Private lenders also expect you to begin payments while you’re in school, and they usually have higher interest rates.
What loans are you eligible for?
Borrowers are granted subsidized or unsubsidized loans. What does that mean?
Subsidized loans are ordinarily offered to students who show strong financial need. With subsidized loans, the government pays the interest while the borrower is in school and six months after graduation. The loan limit is also lower. However, with unsubsidized loans, interest accumulates while the borrower is in school and added to the balance of the loan. There are several variations of available student loans, but these two are the most popular.
You’ve graduated. Now what?
There is normally a six-month grace period following your graduation date. This is the best time to decide your repayment plan, see if you need to refinance or consolidate your loans, or determine if you qualify for student loan forgiveness.
It’s crucial to prioritize your budget based on repaying student loans. Avoid default, which indicates you didn’t make payments as outlined in your loan’s contract. When you default, your credit score is critically damaged, you could owe even more money, or your loan holder could collect additional money from you, like your tax refund. It’s helpful to set up automatic payments to avoid missing installments or attaining late fees.
Most borrowers are automatically registered for a standard 10-year repayment plan. But, if you have difficulty making payments, you could be eligible for income-driven repayment plans. They decrease your monthly payment requirements and increase the period over which you pay off your loan, but don’t reduce your interest rate or overall payment. It’s free but only applies to federal student loans.
Likewise, you can refinance or consolidate your loans through a private lender. They’ll assess your credit score, income, and employment to determine if you’re capable of repaying your loans. There are numerous benefits to refinancing—it enables you to combine loans and lower your interest rate, which results in cheaper monthly payments. According to Zack Friedman, author of The Lemonade Life and contributor to Forbes, refinancing can save you more than $20,000 throughout your student loan. However, if you decide to refinance, there are some benefits of federal loans that you could potentially lose, like loan forgiveness programs.
A critical thing to remember: never pay a fee to refinance or consolidate. It’s free, and anyone who charges you most likely doesn’t have your best interest in mind.
Lastly, if you’re employed by a government or not-for-profit organization, or if you teach full-time in a low-income school, you may qualify for Public Service Loan Forgiveness or Teacher Loan Forgiveness. There are underlying stipulations, but these are viable options for anyone who is considering a profession in those industries.
Borrowing student loans can seem nerve-wracking with the mounting student debt crisis—but it doesn’t have to be. You can set yourself up for success by choosing the best loan for you, as well as selecting an ideal repayment plan. Now is the time to make repaying student loans the least of your worries.
