It is very important for you to give some serious thought to how much debt you are willing to shoulder and then map out a plan to repay loans as quickly as possible. Unlike grants or work-study aid, loans remain a part of your life long after college graduation.
Some advisors suggest that monthly student loan repayments should not exceed 10 to 15 percent of a new grads starting monthly income. And you should ponder how you would support your family while doing this. Lets take a look at some different suggestions.
Tips For Managing Your Student Loan Debt. need to borrow smart and only borrow what you need. Your actual repayment amount is going to be much higher once interest is calculated. So don’t assume that you are paying back exactly what you’re borrowing. You need to budget and stick with it.
Federal student loans come in two sizes, subsidized and unsubsidized. Subsidized loans are where the government pays the interest on the loan for the duration of your education.
Unsubsidized loans interest begins accumulating immediately. To save yourself some money, max out your subsidized loan borrowing power first.Pay interest on your unsubsidized loans as you go along. If you find yourself with any extra money use it to start paying the interest payment (only). You’ll find yourself facing lower loan payments when it comes time to repay your principal.
Try to avoid private loans, it it’s within your means. If you are forced to take out private loans, borrow the least amount possible and pay off the balance of these loans first. The interest and fees are the highest of all loans.
Many students enter school with a fair amount of credit card debt. Interest rates on these cards are often times extremely high. If you’re making the minimum payment or something close to it, interest accumulation will make paying off your balance very difficult.
If you have additional borrowing power on a federal student loan, borrow the extra amount to pay off your credit card in full. The benefits are obvious; you are using a lower interest rate loan to pay off a higher one. Then you have to be dedicated and budget yourself to pay off the balance monthly.
Loan Repayment Options.Always factor in fees when you are considering education loans. Up to 4 percent of the total amount of a loan may be eaten up by the up-front fees; 3 percent to the lender and 1 percent to the guarantor. The standard repayment program involves making equal monthly payments over a 10-year period.
The extended repayment program can extend the repayment period to upward of 30 years, depending on the total amount of debt and which lender is involved. Under the graduated repayment plan, payments gradually increase, usually every two years.
The income-contingent repayment plan ties the repayment amount to income and often allows for a longer repayment period. Be careful to balance long-term cost of these repayment plans against short-term payment relief. Although you will be paying less per month, you could end up owing and paying significantly more in the long run because you are slowing down your repayment of the principal.
By: Court Tuttle