While a lucky few have enough money to pay for college with grants, scholarships, and savings, most students will have to borrow several thousand dollars before graduating. Federal student loans have a lower repayment interest rate than private loans, but when you don’t have a reliable source of income immediately after graduating, your interest starts accumulating year after year. By planning your coursework, staying focused, and borrowing only what you need, you can graduate with a very manageable debt, and the sooner you pay your debt in full, the less you end up paying in the long run.
Keeping Your Debt Low
Most undergraduates are eligible for subsidized and unsubsidized federal loans, and the amount you’re eligible to borrow should be more than enough to complete your degree while paying living expenses. The key to graduating with a reasonable amount of debt is choosing your major as soon as possible, and taking only the required courses. If you change your major several times, you could end up paying for an extra semester or two and graduating that much later.
Keeping your living expenses to an absolute minimum is another key to avoiding a mountain of debt. It’s not always possible to work while going to school full time, but you can dramatically reduce your living expenses by renting an inexpensive room, riding a bike to school, and cooking your own food.
Another point to consider is that most students are eligible for quite a few different grants, such as Pell grants and other location-specific grants. Grants are free financial assistance that do not need to be repaid. Your university financial aid office will find as many grants as you’re eligible to receive when you apply for aid. You may receive $1,000 or more per semester from grants.
Managing Student Loan Repayment
If you receive only federal student loans, you have a six-month grace period before you have to begin repayment. The grace period begins as soon as you drop below half-time enrollment, and it adds up for every semester you attend college less than half time. In other words, if you take off a semester and then return the following semester, three months of your grace period are used up. If you still don’t have an adequate source of income when your grace period expires, you can apply for debt forbearance or income-based repayment (IBR).
You can apply for IBR for up to three years, essentially extending your grace period for an equal amount of time. You don’t have to make any payments if you qualify for IBR, and when you begin repaying your loan, your monthly payments are calculated as a reduced percentage of your income. These payments are typically quite easy to make, but paying your debt off this slowly increases the total amount to end up paying over the lifetime of the loan. Only federal student loans are eligible for IBR or forbearance.
You can apply for forbearance if you’re not eligible for IBR but still unable to make loan payments. Forbearance stops your payments for up to 12 months, but interest continues to accumulate on the principle. Interest also accumulates on loans during IBR.
If you’re ineligible for IBR or forbearance, you can apply for student loan consolidation to reduce your monthly payments. This service is provided by private credit companies who charge a fee for the service, and the same advice applies to these reduced payments as to IBR payments. When you reduce your loan payments, you end up paying the loan for a longer amount of time, accumulating a larger amount of interest. Still, loan consolidation can relieve stress when you’re just starting out in a new career.
If you’re careful from the beginning, student debt is not really that terrifying. However, you do need to start planning your repayment as early as possible. If you leave school with more debt than you anticipated, there are resources to help you make payments without harming your credit. If you don’t qualify for IBR, forbearance, loan consolidation can give you a chance to establish yourself before repaying your loans.
“Brooke Chaplan is a freelance writer and blogger. She lives and works out of her home in Los Lunas, New Mexico. She loves the outdoors and spends most her time hiking, biking and gardening. In her research of this article she used Creditguard.org as a resource. For more information contact Brooke via Twitter @BrookeChaplan.”