How to pay for student loansDate posted: 9/30/16 05:02:00 PM
College can be overwhelming, and between meeting deadlines for homework and papers, to late night study sessions and weekend activities, students have a lot on their minds. With so many things going on, it's understandable if finances aren't exactly top of mind.
But they should be, especially considering a majority of students today will have to take out loans to pay for their education.
While you don't have to make any monthly payments until after you graduate, you'll still want to figure out how to pay for your student loans when the time comes. Before you know it, you'll be walking across the stage to accept a diploma, and shortly thereafter, you'll need to start making payments.
What loans do you have?
Taking out student loans is one of the earliest items to take care of on your college checklist. Not finalizing the financing options could delay your enrollment or put a hold on your semester grades.
There are two main types of loans students typically take out: public and private.
Public loans are offered by the U.S. Department of Education. Direct subsidized loans often come with better terms if you demonstrate financial need. Unsubsidized federal loans are available to anyone, even if they don't have as great of a financial need.
To be eligible for public loan options, you'll have to fill out the Free Application for Federal Student Aid (FAFSA) form every year. The government, as well the school you're attending, will then determine what financing options you have. If you aren't eligible for federal aid because of your family's income, private loans can help pay for college.
Private loans are offered by banks and other financial institutions. With private loans, students can ensure they have enough money to fill in any money gaps where public funding falls short.
But once you agree to take out the loans, the clock starts ticking on the date which you have to start repaying them. You'll have until you leave school to develop a plan for repaying your loans.
When does repayment start?
Repayment terms will differ depending on the types of loans to your name. When you have public loans, you'll need to start making monthly payments six months after your graduation date. That period is known as a grace period and is meant to give you enough cushion to ensure you find a sustainable income and can prepare for the payments.
Private student loans are different because repayment terms are set by the lender. Some, such as Sallie Mae, may offer a grace period. But private lenders are not obligated to do so, and you may be required to start making payments immediately following graduation.
If you have loans from a private lender, it's in your best interest to contact them well before graduation to find out the exact date repayment begins. You may find you need to start working while still taking classes to set aside money for the monthly bill.
Tips for affording your monthly loan payments
There's no escaping the fact that once you take out student loans, you'll likely leave school with debt. According to Student Loan Hero, the average 2016 graduate left school with approximately $37,172 in debt.
Looking at that number, it's easy to feel overwhelmed. But by developing a monthly budget and sticking to it, you can tackle the behemoth that is your student loan debt. While it might take quite a few years to hit zero, you'll eventually be student-debt free.
Most important is to remember to always make your monthly payments. This bill can't be skipped and should be one you pay no matter what.
Lenders will provide the exact details of your monthly payment, and some may even work with you to ensure you can afford everything. For example, you may be able to choose an income-based repayment plan if you have federal student loans. Choosing this option can help if you've just been hired at an entry-level position, and you don't yet have a big enough monthly income. However, lower monthly payments translate to more years paying off your principal balance, plus interest, which means you will pay more over time.
Private lenders may offer the same level of flexibility, but you'll need to confirm if they can let you choose a different payment option.
Paying off the loan
When you start making loan payments, your monthly finances will have to be adjusted. Consider cutting back on some expenses, such as frequently buying new clothes, always going out for lunch or dinner or taking expensive trips.
Additionally, you might want to hold off on moving out of your parent's house until you are financially ready to do so. Since you'll be living at home, focus on making more than the minimum payment because you won't have to worry about paying rent. By lowering your principal balance at a faster rate, future monthly payments may start to lower.
Once you find yourself in a financially secure position with a sizeable savings account built up, you can then focus on moving out. But when looking at apartments, stick to your budget that also includes student loan payments. Try not to go for apartments that will stretch your monthly income too thin and leave you with little wiggle room.
Repaying your student loans is a big undertaking, considering the large amount of money you likely have to pay back. But by understanding the little details and with smart budgeting, you can pay for your student loans and still be able to enjoy life after college.
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