Student Loans - What you Need to Know!

By: Ben Smith

Student loans… a dilemma that the majority of the audience reading this must face head on. They affect so many college students in the US, yet most don’t understand what they are getting themselves into, or how to properly manage your student debt.

This article will explain to you what you may not understand: There are ways to get loans reduced, pay them off quicker and finance them in a way that doesn’t drastically change your quality of life.

What are student loans?

In short, Student loans are a type of financial aid that helps students pay for their education expenses, such as tuition, fees, room and board, books, and other educational costs. There are two types of student loans: Federal loans and Private loans.

Federal loans are given out by the government:

• Federal student loans generally have lower interest rates and more flexible repayment options compared to private student loans.

• Eligibility is based on financial need and other criteria.

Private loans are given out by banks, credit unions and other private lenders:

• Interest rates and repayment terms are set by the lender, and they are generally higher than federal student loans.

• Eligibility is based on the borrower's credit history and other factors.

Steps to a Healthy Repayment:

A plan is needed when taking out loans, stretching hundreds of thousands of dollars. It is crucial that you immediately gather all your loan details like balances, interest rates, and monthly payments in one place so you can develop a strategy. If possible, you should aim for a 10 year standard Federal Loan Repayment program to minimize your interest rate.

Next, you should explore all avenues of any student loan forgiveness programs you may qualify for, such as Public Service Loan Forgiveness. You should also explore federal loan assistance programs like income-driven repayment plans, deferment, or forbearance.

Once you begin making payments, it is extremely beneficial if you pay more than the minimum due each month. Paying extra towards the principal can save you thousands in interest and help you pay off your loans faster. At the same time, you should make additional payments whenever you have "found money" like tax refunds or bonuses. Apply these lump-sum payments directly to the principal.

After a period of time, you may consider refinancing your loans if you have good credit and a steady income. This may lower your interest rate and monthly payment.

Conclusion:

The consequences of defaulting on student loans are serious, and should not be messed around with.

The main consequences of defaulting on student loans are:

1. Loss of eligibility for loan deferment, forbearance, and repayment plans. You will not be able to access these options to temporarily pause or lower your payments.

2. Ineligibility for additional federal student aid. This means you will not be able to take out new federal loans or receive other types of federal financial aid.

3. Potential wage garnishment, where the government can take money directly from your paycheck without a court order.

4. Tax refunds and Social Security checks being withheld and applied to the defaulted debt.

5. Significant damage to your credit score, making it harder to qualify for other types of credit like credit cards, auto loans, or mortgages.

So, do what you can to handle repayments on time!