Student Loans: The Bad and the Bad (There is no Good Part!)

Student Loans: The Bad and the Bad (There is no Good Part!)

UGH. Student loans. You get excited when you see your paycheck but knowing that a big chunk of it isn’t really yours because it has to go towards your loans is the WORST. Well you aren’t alone. In fact, you have 44.2 million friends in America with student loans and those that graduated college in 2017 had an average of nearly $39,400 in loans!

Like most other things, the more we know, the better off we are. So lets start with an overview of the types of loans.

Stafford Loan – There are 2 types: subsidized and unsubsidized.

Subsidized

  • You DO NOT have to pay any amount until you graduate. The government pays your interest while you are in school.
  • Reserved for students who can demonstrate a financial hardship. Most go to students whose families’ annual income is less than $50,000.

Unsubsidized

  • You can defer while you are in school BUT you’re responsible for paying off all the interest.
  • All students are eligible for this type of loan.

Private Loans 

  • Generally more expensive than federal loans
  • May require an established credit record
  • May have higher interest rates than federal loans

Differences between public and private student loans include:

  • Interest rates on federal loans are fixed- meaning it won’t increase but it can’t decrease either. The interest rates on private student loans can be variable (can change) or fixed and are usually higher.
  • Undergraduate borrowers who can demonstrate financial need could receive a federal subsidized loan, meaning the government pays the interest until you graduate. Private loans are never subsidized. You pay all the interest.
  • Federal loans offer flexible repayment options and loan forgiveness programs. Private loans have few repayment options and no loan forgiveness programs.
  • Federal loans don’t have to be repaid until you graduate or drop below half-time status as a student. Many private loans ask for repayment while you’re still in school.

 

Ok, So What Now? 

 

  • Set aside some time to go over your loans. Do you have private loans or federal loans? Make it your goal to know what type of loans you have and the interest you are paying on it.

 

  • Make it a goal to pay off your loan with the highest interest first. A high interest rate is bad because your monthly payments are going towards paying the interest versus the actual loan! This means you are hardly making a dent in your loan!

 

  • Consider consolidating your loan – this means you merge all your loans together with one bank so its one payment a month. This is done mainly for convenience.  Keep reading for pros and cons of doing this!

 

  • If you paid a fee for a late payment, call the loan company, apologize, and get your money back to apply towards your loan. It is ALWAYS worth calling the company because they will usually reimburse you. Be persistent!

 

  • Sign up for automatic payments so you don’t have any late fees. Be sure your account has enough funds.

 

  • Refinance – This is similar to consolidation as you have one check to write out, as well as seeking better interest rates and monthly payments.  Both federal and private loans are able to be refinanced. Look up banks for low interest rates to refinance with. Its worth your time because it can save you thousands in the long run!

 

Pros and Cons of Consolidating your Loan

PROS

-gets all your loans together so you have 1 due date, 1 payment, 1 account. It makes it simple.

-extends the time to pay off your loans which means smaller monthly payments but means you end up paying more

-If you can find a low rate, it may be worth it.

 

CONS

– if you consolidate federal loans into a private consolidation loan (you would lose the rights associated with federal loans)

-may end up paying more interest

 

Personal note

I personally consolidated my loan with SoFi with a variable rate. Variable rate means my interest rate changed monthly depending on LIBOR (an organization the decides the daily interest rate). But I noticed that my variable rate started low at 3% but I was paying up to 5% some months! 5% on a lot of money is a lot of money! That’s when I realized variable rate wasn’t the best for me at that time. While searching online, I found First Republic Bank and they were offering 1.95% for a 5 year plan. They even pay back the interest that has been paid against the loan, up to 2% of original loan amount if you can pay off your loan in 4 years.

 

I did the math and when I found that I could save A LOT of money by refinancing, I did it immediately. I am now saving 50% of my monthly payment by refinancing, no joke. I also got 200 dollars because I had a referral! There is one catch. You have to live within a certain range of their bank locations. Let me know if you need a referral.

 

I was going to layout the best banks, but this site did an amazing job and is very thorough!

 

Personally FRB (First Republic Bank) is my favorite because of how it helped me. Keep in mind, since writing this post, rates may have changed! If you decide to sign up, then please give my name so we both can earn $200!

 

Please let me know if you have any questions or comments below!

 

 

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