Americans owe approximately $826.5 billion in credit card debt and owe a staggering $829.79 billion in student loans. This comes at no surprise when the average four-year degree from a public university or college costs about $50,000 for four years (before living expenses) and a private school can cost over three times that! To pay for this, most students are forced to take out loans. However, these loans can be managed and can actually help improve your credit over time.
While in school, make sure that you are making wise decisions about which loans you will take out. Federal loans (including Stafford and PLUS) will always be the best option as these have the lowest interest rates. If possible, only get subsidized federal loans because the government will actually pay the interest on these loans while you are in school. This means that you will owe less on these overall.
After subsidized loans, move on to unsubsidized federal loans. These will accrue interest while you’re in school. To help pay for these, consider taking a part-time job to cover the interest payments while in school. This can help to lower the monthly payments you will have after graduation. You’re last resort should be private loans as these have the highest interest rates.
Once you graduate, it’s key to gather all the information about your loans. Find out how much you owe, what the rates are and what the minimum monthly payments will be. This information is available at the National Student Loan Data System, where you can log on using the PIN from the FAFSA process.
Once you have this information, prioritize the payment of the highest interest loans first, which are typically the private loans. The faster you pay these off, the less interest you pay which can save you a considerable amount.
If you have multiple loans and varying interest rates, you may want to consider consolidating your loans. Consolidating combines all your loans into one – one payment and one applicable rate. This can reduce the amount of the monthly payment. As an added incentive, some lenders may offer more discounts on the interest rate after consolidation. Lenders use a weighted average of the interest rates to decide what the applicable rate will be. If a student’s projected savings is at least one percentage point, they can benefit from the consolidation rates. For the student whose loans total $48,000, consolidation can offer an instant discount on the total of 1%, or $480.00.
Even though they aren’t very pleasant to discuss, understanding your loans can get them paid off faster and save you thousands over time.