There has been a lot of talk in the media lately about student loans. They seem to point with some alarm to the amount of outstanding debt, but don’t really go into detail about how many students have been able to attend the college of their dreams with this assistance. When handled properly, federal and private student loans can make a substantial difference in a student’s ability to attend college. Since some of the problems do focus on repayment, here are four smart tips for making student loan payments the right way:
1. Consolidate Where Possible: Many students or their parents take out a number of loans from federal and private sources throughout their college years. When the time comes to start repayment the student may be faced with different payment amounts, interest rates, payment dates and services. Consolidation allows you to combine multiple federal education loans into one loan. The result is a single monthly payment instead of multiple payments. You can also consolidate your private loans together to equal one payment after graduation.
2. Take Advantage of Income-Based Options: Several repayment plans are available to meet the different needs of borrowers. To make payments more affordable, these options can give you more time to repay your loans or can be based on your income. Federal student loans may be eligible for an Income-Based Repayment Plan (IBR). Your maximum monthly payments will be 15 percent of discretionary income, the difference between your adjusted gross income and 150 percent of the poverty guideline for your family size and state of residence (other conditions apply). Your payments change as your income changes, with a repayment term of up to 25 years. Be aware that you will pay more for your loan over time than you would under the 10-year standard plan. Loan servicers can help find a federal student loan repayment plan that’s best for you.
3. Be Aware of Interest Rates: As with credit cards, student loans may have different interest rates. When possible you want to repay the highest interest rate loans quickly. Consolidation may be another option if interest rates are lower when you graduate.
4. Make Timely Payments: Falling behind on student loan payments can cause an avalanche of problems down the road. Penalties and interest charges add up and you find yourself falling farther and farther behind. Think ahead when taking out student loans and have a repayment plan in mind. Don’t take out more loans than you reasonably think you will be able to repay.
Student loans are a helpful way of making up the shortfall between the cost of attending a certain college and the amount of financial aid available, but they are not to be taken lightly. Set up an appointment now for a free financial aid strategy session with College Financial Aid Advisors (CFAA). Also be sure to request your free copy of The Twelve Most Helpful College Financial Aid Tips.