Debt in all of its forms is a burden. When debt is left over from student loans, any vision of a bright future after graduation can be made much dimmer. It’s not the easiest thing to land a job straight out of college as it is. With the crushing weight of extreme debt on your mind, you might feel the urge to grab the first job that comes along, regardless whether it’s a step in the right direction.
What can you do? The answer isn’t to just avoid college because of the expense, or even to forego taking out any student loans at all. The better solution is to be very clear as to what you’re getting into when you take out your loans, and to make wise financial choices from start to finish.
To shed some light on the subject, here’s some insight into the world of student loans and how to keep the amount you’ll have to pay back to a minimum:
Get as much financial aid as you can. Scholarships, grants, federal assistance, and so on — there are so many resources out there to pull from. It doesn’t matter if you had less than perfect grades in high school. Chances are, you will receive some kind of funding that will lower the amount you have to take out in loans. The more venues you pursue for assistance, the more money you’ll be allotted; you could even end up having most or all of your tuition taken care of!
Types of Student Loans
Now for the remainder of the tuition fees, cost of materials, and living expenses…
Before you take out a loan, do the math and create a budget for yourself to get an idea of how much money you believe you’ll need. Look at the amount of aid you’ll receive, as well as a conservative estimate of the money you’ll bring in from working, and calculate what your loan requirements are.
There are two types of student loans: federal and private. When you need to borrow money, opt for federal student loans first. Federal loans often have lower interest rates and many more payment options and benefits than private loans do.
There are a number of federal student loans available, though some are not offered through every school. To apply for any of them, you’ll just need to fill out the Free Application for Federal Student Aid (FAFSA) and then compile the documents required by the form.
When it comes to taking out a private student loan, you’ll want to talk to your school’s financial aid office. They’ll likely have a list of private lenders they recommend. Then, check them all out to see which of them has the most suitable plan for you.
Before you take out any loan — federal or private — know the terms of your agreement UP FRONT. You’ll want to know when you have to pay off each loan, how much interest it’ll accrue, when it’ll start accruing interest, if there are any additional fees associated with it, and what the payment plans are. Try and meet with a professional who can explain these details to you, and make sure you read and understand the agreements before signing them.
When it’s time to pay off your loans, after you’ve graduated, you have three options: start paying them off, defer payments, or put your loan into forbearance.
Paying off your loans is self-explanatory — the sooner you can be rid of your debt, the better. But if you’re unable to tackle them when the time comes, you may qualify for a deferment or forbearance.
If you qualify for a deferment, you’re able to postpone loan payments. Bear in mind that the loan will start to accumulate interest during this time, and even though you can put off loan payments, you’re still responsible for paying off the interest. However, if you have a subsidized loan, the government may pay off the interest for you while you’re deferring. If you choose not to pay interest while you’re deferring, you can pay it off later: unsubsidized loan interest will be capitalized, meaning the amount is added onto your principle balance, but subsidized loans usually do not work this same way.
Under special circumstances, a loan may be put into forbearance when it doesn’t qualify for a deferment. Forbearance allows you to postpone payments on your loan or reduce monthly payments. The major difference is that all loans — subsidized or not — will gain interest when the loan goes into forbearance, and if that interest is not paid off, it’s capitalized.
If you find yourself needing financial assistance, there are a great deal of options to explore. Before pursuing any option, though, make sure you understand all the details. If you need help deciding on a plan, contact Fundamental Finance Academy to speak to a trustworthy expert, who can help you decide on a loan that best fits your individual situation.