There are a lot of questions surrounding student loans. How do you get one? What are the best ways to use it? And when it comes time to pay it back, is there a way to make that process easier? In this article, we will answer all of those questions and more. We’ll start by discussing how to get a student loan and then move on to some tips for making the most of that loan money. Finally, we’ll talk about how to pay back your student loan successfully – no matter what stage of life you’re in.
Table of Contents
- What can you use your student loan for?
- How to get a student loan
- Repaying your loan
- Tips for paying back your student loan
- 5 student loan mistakes to avoid
- Bottom line
What can you use your student loan for?
Student loans can be used for both educational and non-educational. Here are just a few examples of what you could use your loan money for:
- tuition and other education expenses,
- room and board,
- textbooks and school supplies,
- transportation costs,
- living expenses,
- medical expenses
Although student loans can be used for various purposes, they are often best known for helping to pay for tuition or other education-related expenses. In fact, according to Sallie Mae’s “How America Pays For College” report, 71 percent of parents said they would use student loans to pay for their child’s education. However, there are other uses for student loans as well. For example, you can use them to help cover living expenses while in school, purchase a car or house, or even consolidate debt. So whatever your needs may be, it’s important to know that student loans can likely help you meet them.
How to get a student loan
If you’re a student who needs a loan to help pay for school, you may be wondering how to go about getting one. The process can seem confusing at first, but it’s really not that difficult. Here’s a guide to help you get started. First, you’ll need to figure out how much money you need and what kind of loan is best for you. There are several different types of student loans available, so you’ll want to research to find the one that fits your needs. Then, apply for the loan through the government or a private lender. Be sure to read all the paperwork carefully and understand the terms of your loan before signing anything. Finally, start paying back your loan once you graduate and start making income. Follow these steps, and you’ll be on your way to securing the funds you need for school.
How Much Should You Borrow?
Generally, you can take out a private student loan for the cost of attendance minus any scholarships, grants, or other financial aid you receive. However, smart borrowing means that you should only borrow what you need and what you can pay back.
Private student loans should be considered after you’ve checked out all of the other free sources of college money, such as scholarships or grants. You should fill out your FAFSA application first and receive your Student Aid Report so that you are aware of what you are expected to pay once your financial aid package is processed.
Applying for a student loan
Federal student loans are guaranteed by the government and typically have lower interest rates than private loans. They also often come with more flexible repayment terms. The most common type of federal student loan is the Stafford Loan, which is available to both undergraduate and graduate students.
Private student loans are not guaranteed by the government and typically have higher interest rates than federal loans. They may also have less flexible repayment terms. Private student loans are best used as a last resort after you’ve exhausted all other options, such as scholarships, grants, and federal student loans.
Once you know how much money you need to borrow and what type of loan is best for you, it’s time to apply. For federal student loans, you’ll need to fill out the FAFSA. The FAFSA, or Free Application for Federal Student Aid, is a form that almost all schools require students to fill out in order to determine their eligibility for federal financial aid. Your EFC, or estimated family contribution, will be based on the information you provide on the FAFSA and will give you an idea of how much you’ll need to borrow. It’s important not to ignore your EFC and instead borrow too much money because it can become difficult to repay what you’ve borrowed.
For private student loans, you’ll need to apply directly with the lender. When you’ve decided that you need to find a private student loan to cover your education expenses, be sure to use a comparison tool so that you can see loan options from multiple lenders. Don’t forget to look at several factors, including interest rate, terms, and length of the loan.
Co-signers on Student Loans
If you want to get a private student loan, we recommend that you apply with a co-signer. This can help you get lower interest rates and it also gives your co-signer some added security in case you have trouble repaying the loan. However, before you apply for a student loan with a co-signer, it’s important to understand the risks involved. If you cannot make your payments, your co-signer will be responsible for repaying the loan. This could damage their credit score and affect their ability to borrow money in the future. So, if you do decide to go with a co-signer on your student loan, be sure to stay on top of your payments and educate yourself about all of your repayment options. And most importantly, be grateful to your co-signer for helping you out!
Repaying your loan
Once you’ve graduated and are no longer in school, it’s time to start repaying your student loan. You’ll typically have a grace period of six months before you need to begin making payments. Your repayment plan will depend on the type of loan you have and your personal financial situation. You may be able to choose from a variety of repayment plans, such as the standard plan, which has fixed monthly payments for up to ten years; the graduated plan, which has lower payments at first that increase every two years; or the income-based repayment plan, which is based on your income and family size. You can also extend your repayment period by consolidating your loans or switching to an income-contingent repayment plan.
Paying off your student loan early
If you can, paying off your student loan early can save you a lot of interest. There are a few different ways to do this. You can make extra payments on your loan each month or lump-sum payments when you have the money. You can also refinance your loan to get a lower interest rate and make smaller monthly payments.
Student loan consolidation
If you have multiple student loans, you may want to consider consolidating them into one loan. This can simplify your repayment process by giving you a single monthly payment to make. It can also save money by lowering your interest rate and extending your repayment period. However, it’s important to note that consolidating your loans will also increase the total amount of interest you’ll pay over the life of the loan.
When you consolidate your student loans, you are grouping all outstanding debt into one single loan with only one lender and one repayment plan. In other words, student loan consolidation is a type of loan that allows the borrower to group many individual loans into one single loan. When the procedure for loan consolidation starts, the balances of your original loans are paid in full by the consolidation lender. Your debt is then owned by the lender you choose, and payment plans prepared for them usually carry a lower interest rate, making repayment far less complicated.
Student loan consolidation provides many advantages, such as lower monthly payments, a single loan payment instead of multiple, and low, fixed interest rates instead of variable rates. Oftentimes lenders will take 0.25 percent off your student loan rate if you sign up to have the payments made automatically.
Paying off your student loan with a personal loan
If your student loan debt is getting you down, you may be looking for any solution to make the payments more manageable. One often-overlooked option for dealing with student loan debt is taking out a personal loan.
With a good credit score, you may be able to get a personal loan with a lower interest rate than your student loan. This can save you money on interest and help you pay off your loan faster. However, it’s important to make sure you can afford the monthly payments on a personal loan before taking one out.
Taking out a personal loan to pay student loan debt may not be the best option for some. To help you determine if it’s a good option for you, we’ve listed some pros and cons of using a personal loan to repay student loan debt:
- A personal loan may allow you to consolidate your student loans leaving you with only one monthly payment to keep up with.
- You may be able to access a personal loan with a lower fixed rate than what you have with your student loans.
- A personal loan can provide you with a fixed interest rate and a fixed repayment period.
- If you have a cosigner on your student loans, repaying the student loan with a personal loan would release your cosigner from their obligations.
- A personal loan can be discharged in bankruptcy, unlike most student loans.
- The interest on a personal loan is not tax-deductible like it is with student loans.
- Personal loans don’t offer benefits like deferment or forbearance as federal loans do.
- The personal loan lender may limit how much they allow you to borrow.
- The personal loan rates offered to you may not be lower than your student loan rates.
Tips for paying back your student loan
Don’t ignore your student loan debt
Just because you’re avoiding the debt doesn’t mean it doesn’t exist! Avoidance can lead to severe consequences like delinquency and default; both can leave your credit score in shambles. Besides, default can lead to your wages being garnished and tax refunds seized by the government.
Make sure you know when your first payment is due and have the money saved up.
Know the details of your loan
Knowing your lender’s information, loan balance, and repayment status is essential when paying off your student loan debt. You can access federal loan information at www.nslds.ed.gov. For private loans, look for related paperwork you signed or contact your college or university.
Know the repayment options and their guidelines
Most loans, both federal and private, offer multiple repayment options. Read over your options, including all fine print, before choosing. Keep in mind that while extending the length of your loan will lower your monthly payment, the loan will cost you more through the interest in the long run. Options such as income-based repayment and related income-driven repayment options should also be looked at.
If you’re struggling to repay your loan, you may consider consolidating your loans, lowering your payment amount, deferring your loan, or switching to an income-based repayment plan.
Pay more than the minimum payment anytime you’re able to
Be willing to sacrifice some comfort now to pay less in interest overall. When you have any extra money, put that money towards paying off your loan debt. You’ll thank yourself later.
Start by paying off the most expensive loans
It might seem obvious but if you have multiple loans, begin by paying off the most expensive ones first. Don’t avoid other loans but put any extra amount you can afford into paying off the highest interest rate loans first.
Consider consolidating or refinancing your student loans
If you’re struggling with multiple student loans, consider consolidating or refinancing. Consolidating and refinancing allow you to pay off the various debts with one loan, leaving you with only one payment to worry about. Consolidating and refinancing can also give you access to lower interest rates than you currently have.
Look at loan forgiveness programs
Usually involving government or non-profit employment, loan forgiveness programs can offer you relief from all or a portion of your loan debt in exchange for work. Before deciding to participate in a forgiveness program, consider all employment options. It might be smarter for you to take a higher-paying job somewhere else instead of going with a loan forgiveness program. Carefully read all details of these programs.
Find other ways to save and earn income
Besides putting yourself on a budget, research other money-saving or money-earning opportunities. This could mean not taking that vacation this year or perhaps taking a second job. Spend smart and budget accordingly.
5 student loan mistakes to avoid
Some student loan mistakes are made when applying for and taking out loans, and others are made during repayment. Missed opportunity cost is often the biggest student loan mistake. We want to prevent this by helping you make more informed decisions about your student loans. Below are a few things to keep in mind when taking out and repaying your student loans.
Not knowing how much you need
Almost all schools require students to fill out the FAFSA for federal financial aid. Your FAFSA results will tell you what your estimated family contribution (EFC) will be for your cost of attendance (COA). That number should let you know how much you’ll need to borrow. Don’t ignore it and borrow too much because you risk biting off more than you can chew.
Borrowing all that is offered
It might be easy when you’re a broke college student to see the loan amounts offered as free money, or extra cash, toward living daily life. You’ll see it in a new way entirely when you’re getting those bills later, and they are more than you can handle. Just remember that you will have to pay this money back, so borrow only what you need.
Not knowing your monthly payments
Make sure you understand ahead of time what kind of monthly payments to expect when you start paying back your loans. You can use online loan calculators to help you plan. Too many students get caught off-guard when that first bill comes. Don’t be one of them!
Assuming you need private loans
Don’t look at your EFC and go straight for private loans. Think about your options. How much of that amount can your family contribute? Are your parents willing to opt-in for the Parent PLUS Loan? Have you discussed school-sponsored scholarships with the financial aid office? Have you applied for private scholarships as well? Many students have more options than they realize.
Not knowing your private loan options
If it so happens that you do need a private loan, please please compare your options. We can’t stress that enough. Visit your local credit unions for great terms and low fees before looking to the big guys. You can also go online and visit student loan comparison sites that show you what different lenders have to offer. This way, you can at least make sure you’re borrowing smart.
Student loans can be a great way to finance your education, but it’s important to borrow wisely and make sure you can afford the monthly payments. Be sure to compare multiple lenders before taking out a loan and consider consolidation or refinancing if you’re having trouble making your payments. If you can, make extra monthly payments to pay off your loan faster and save money on interest.
If you’re one of the 43 million Americans with student loan debt, don’t worry. You’re not alone, and there are ways to get help. Here are some tips on how to use your student loan wisely and pay it back comfortably. And if you need more information or want to explore your interest rate options for a personal loan, check out our website. We can help you find the perfect loan for your needs. Thanks for reading!
Do you have any tips for repaying student loans? Share them in the comments below!