11 things to know about student loans before getting into debt
Any potential student knows that tuition, accommodation, and living costs can cost an arm and a leg. Often times, it is virtually impossible to pay that bill through savings, investments or a part-time job. As a result, many students are forced to take out student loans to finance their studies.
According to a report released by the National Conference of State Legislatures, the average graduate student has approximately $ 65,000 in debt. In fact, aside from housing debt, student loan debt is the highest personal debt in the country!
Before you jump tens of thousands of dollars into the red, here are 11 things you need to know about student debt.
1. There is a big difference between federal and private loans
Federal and private loans are not created equal. Federal loans have low, fixed interest rates, which are essentially the same for every borrower – between 2.75% and 5%. For private loans, the interest rates are wider and the lender can charge interest between 4 and 13%. This means that private loans could make you cough up a lot more money in the long run.
Another important difference is the borrowing limit for federal and private loans. You can take between $ 5,500 to $ 12,500 per year in federal student loans, depending on your school year and dependency status. The amount can go up to $ 31,000 in total for the entire course. However, the limits on private loans depend on your ability (or that of your family) to repay them.
2. Bankruptcy Cannot Eliminate Student Loans
Student loans are not dischargeable in bankruptcy unless you can prove that repayment would cause “undue hardship.” However, it is almost impossible to win an argument of undue hardship. To do this, you need to prove that you have done everything in your power to pay off the debt and that there is little hope that you will ever be in a stable position to make regular loan repayments.
Meanwhile, if you simply choose to stop paying down payments on your loans, the government can garnish your paycheck by taking money directly from your paycheck to the loan provider. Either way, the ball is not in your court.
3.… But your student debt can be forgiven
Here’s the good news: you can eligible for a loan discount based on your university degree and current occupation. If you are in the public service or a nonprofit job, you can apply for public service loan discount (PSLF).
Keep in mind that qualifying for the PSLF comes with several strict conditions. You will need to remain employed in the public sector full time (at least 30 hours per week) while making the minimum monthly payments on your loans for 10 years. Only then will the remaining balance of your student loans be canceled.
There are also other plans for students with disabilities and those with income-based repayment plans. In fact, even teachers, lawyers, and those who serve in the US defense may be eligible for student loan cancellation.
4. Loan repayments are not due upon graduation.
If you are already stressed by repay your student loans after graduation, don’t panic. For most federal student loans, you have a six-month after-school grace period before you have to start repaying. It will save you time to find a job.
On the flip side, many private student loans require you to make repayments while you are still in school. Only some loan providers will allow you to defer your repayments until you graduate. If you are considering applying for a private loan, first check if your bank has options to defer or reduce loan repayments.
5. Once you’ve chosen a loan, your school will do most of the work.
When you have applied for a loan, financial assistance goes directly to your school for tuition, housing, and other payments. After the school deducts these amounts, the remaining amount is transferred to you for your daily expenses. This ensures that you don’t splurge on unnecessary purchases before paying for necessities, like your tuition.
6. Understanding the financial aid award letter is crucial
If you have submitted a FAFSA and have been approved for financial aid, your school will send you a financial aid award letter. A financial aid award letter explains the monetary aid you will receive from the school, internal grants or scholarships, and sometimes the expected cost of your tuition.
However, these letters can be confusing as they are full of numbers and differ from school to school. A quick search for “how to read your financial aid scholarship [college name]”Will break down the letter for you and tell you exactly what to expect.
7. Only student loans you can repay
This is obvious because financial aid is rarely a gift. You are responsible for paying back every penny along with any interest that might be there on the amount you borrow.
It is always important to know the terms of your student loan and how the interest will be added to your debt. While it can be tempting to borrow a little more than you need, don’t bite more than you can chew. If you are not sure how much to borrow, consult a student debt affordability calculator in line.
8. Student Debt Scams Exist – Here’s What To Watch Out For
You should alwaysbeware of crooks tricking unsuspecting students into student debt scams. Usually, these companies require an upfront payment, promise a loan forgiveness, or request sensitive personal information.ation. They will even charge student loan borrowers for free student loan assistance services provided by the federal government.
If a business offers you loan-related services, contact your student loan manager first. Student loan managers are responsible for collecting payments and managing your debt on behalf of your lender. Depending on your student loans and if you have a mix of federal and private student loans, you may have more than one loan manager.
9. You can get a loan or a grant at any time, even if you are still in school.
As long as you have submitted your FAFSA, you can get a federal student loan at any time of the year. If the deadline for completing FAFSA has passed, contact private lenders.
You can also apply for grants or scholarships at any time of the year, as long as you meet the deadlines!
10. You can refinance your student loans later and get a better rate
Refinancing allows you to save more money by replacing your existing debt with a new, lower cost loan.
A strong credit rating and a stable income can help you get approved to refinance your student loans. Lenders check your debt to income ratio which is your monthly income versus your monthly debt. Refinancing a student loan could free up money to save, invest, or pay off other debt.
11. Your student loan money can’t be spent for nothing
Your student loan is specifically for school-related expenses – tuition, books, and transportation. The loans are meant to pay for education, so you can’t use the money to buy concert tickets or a Playstation. Reduce additional costs and make sure that you are using the loan for the right purpose.
Life with student debt can be frustrating – there’s nothing worse than seeing your money go into debt instead of taking a vacation, a car, or your first home. To avoid stressful debt situations, be sure to research all of your options ahead of time to position yourself for the best possible outcome.