Choosing Student Loans and Strategies for Repayment

If you’re like many college-bound students, you’re considering taking out loans to help cover the costs of your education. However, like many students, you also may be concerned about how to repay them. Loans can help you with your education, which is likely to garner you a bigger salary throughout your lifetime, but it’s also a good idea to have a plan for paying them back.

Choosing the Right Federal Loans

Federal loans may offer low interest rates and a number of protections and repayment options. Those options can include some forgiveness as well as payment based on income. Direct subsidized loans are based on needs, so you may not qualify for them. The first step in finding out what federal aid you are eligible for is to fill out the Free Applications for Federal Student Aid.

Choosing the Right Private Loan

Private student loans are not based on need, and there may be more money available to borrow than with federal aid. Take a look at options from many different lenders. Do some research as well on what you can expect your salary to be in your field when you graduate, and try not to borrow an amount that will require you to set aside more than 10% of that salary. Consider interest rates, how long you have to complete the repayment plan, whether you need a cosigner and fees. In addition, look into whether there are options for deferral if you have a financial crisis.

Start Early

Many people don’t realize that they can start making payments while they’re still in college. Although you are unlikely to be required to start until after you graduate, often after six months, doing so early can make a big difference in the overall total amount that you owe.

Budget and Pay Aggressively

Whether or not you wait until after graduation, make a budget to help you find ways to save money every day and keep expenses down and stick to it. Look for ways to reduce how much you owe. Some lenders may offer a small discount if you set up automatic payments. You may also want to consider sending in a check twice a month. However, if you take this approach, make sure to let your lender know that you are doing so and that you don’t want your account put into a paid ahead status. Instead, you want the extra amounts that you are sending in to be applied to the principal. While you may be tempted to spend your money on other things, you really will save in the long run if you focus your efforts on these loans.

When Not to Pay Quickly

No financial advice is one-size-fits-all, and the benefits of paying off your loans quickly don’t apply to everyone. If you have other, higher-interest debt, you should focus on that instead. You may want to put more of your money toward retirement, especially when you are young, and other investment goals. There are a lot of moving parts to consider, and you might want to meet with a financial advisor to talk about your particular situation and make a plan.


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