Understanding the types of loans offered to you in your financial aid package is key to managing your budget effectively. As you review loan types, it is helpful to ask yourself the following questions: "Who takes out the loan" and "Who pays the interest while I'm in school?"
There are three major types of student loans:
- Perkins Loans
- Stafford Loans
- PLUS Loans – Loan for Parents
The primary difference is that students take out Perkins and Stafford loans themselves, while PLUS loans can only be taken out by parents.
The loans that you borrow yourself are often a better deal because PLUS loans require your parents to begin repayment within sixty days of the final disbursement. With the Perkins and Stafford loans, you don't have to start paying them off until six or nine months after you graduate from school, withdraw, or fall below half-time enrollment status.
The question of whether a loan is subsidized or unsubsidized comes down to who pays the interest while you are in school.
Subsidized Stafford loans are need-based and are the BEST OPTION. The government pays the interest on these loans while you are in school and during the first 6 months after you graduate, withdrawal or fall below part-time. The government also pays the interest during any authorized deferment (i.e. if you apply to have loans deferred due to financial hardship).
Unsubsidized Stafford loans are not need-based, and you are responsible for all of the interest that accrues on the loan, including while you are in school. You may however, choose to pay the interest while you are in school.
While subsidized loans are the preferred choice, you are limited to specific amounts each year.
Showing posts with label Student Loan Debt. Show all posts
Showing posts with label Student Loan Debt. Show all posts
Tuesday, February 12, 2008
Question: I am a currently a college student and would like to know what is the best approach for tackling my student loan debt?
Question:
My only concern are my student loans. I predict that I will have incurred a debt of $80,000 after completing my Masters. I live a comfortable yet modest lifestyle and do not want to be bogged down with too much debt. I do not want to have student loan debt for the rest of my life.
I have not began a career yet, so at this point I feel like I can't make much of a contribution, which is probably where most people go wrong. Ideally, I would like to have my student loans paid off shortly after graduating; however, I don't know where to start.
I am interested in learning more about managing the money that I do have and also working on decreasing my student loan debt.
Answer:
1st – Get a copy of your credit report to verify that student loan debt is all you have – also verify the amount of Student Loan debt you have accumulated thus far. Request a FREE copy of your report from here: www.annualcreditreport.com
2nd – You have to create a budget to determine how much extra money you have left after expenses. Creating a budget will help you identify where you spend the most money and what categories you can cut back. After you have trimmed your expenses and accounted for every penny we now have feasible amount that can be contribute toward your debt. See other budgeting articles for details on how to create a budget.
3rd – After you have created your budget and determined how much you can start contributing, we can determine a reasonable timeframe for you to be completely out of debt. Starting now is a great ideal and will help you get out of debt quickly.
Many people make the mistake of waiting until after they complete college to start paying off student loan debt since their loans are in deferrment. The power of compounding interest works both ways! Compounding interest can either work in your favor or work against you! If you have $80,000 in loans your required payment based on a 20-year payment schedule and 5% interest rate is approximately $530/mo.
Guess What.......
About $300 of that is interest!!! If you have Subsidized Loans (you are NOT charged for interest during deferrment); therefore, any payments you make while you are in school or during that 6 month period after graduation will be used ENTIRELY to reduce your principal. I can breakdown the numbers even further to show you how beneficial it is to start early; however, I can see your eyes glazing over due to information overload so I will include that in my future post.
The moral of the story is! START EARLY!!!!
If you have any extra money - use it to pay off those loans! Every penny helps and anything you can scratch up can help you on your journey to becoming debt free.
Tax time is here. If you are receiving a refund, this is the perfect opportunity to contribute toward reducing your debt!
My only concern are my student loans. I predict that I will have incurred a debt of $80,000 after completing my Masters. I live a comfortable yet modest lifestyle and do not want to be bogged down with too much debt. I do not want to have student loan debt for the rest of my life.
I have not began a career yet, so at this point I feel like I can't make much of a contribution, which is probably where most people go wrong. Ideally, I would like to have my student loans paid off shortly after graduating; however, I don't know where to start.
I am interested in learning more about managing the money that I do have and also working on decreasing my student loan debt.
Answer:
1st – Get a copy of your credit report to verify that student loan debt is all you have – also verify the amount of Student Loan debt you have accumulated thus far. Request a FREE copy of your report from here: www.annualcreditreport.com
2nd – You have to create a budget to determine how much extra money you have left after expenses. Creating a budget will help you identify where you spend the most money and what categories you can cut back. After you have trimmed your expenses and accounted for every penny we now have feasible amount that can be contribute toward your debt. See other budgeting articles for details on how to create a budget.
3rd – After you have created your budget and determined how much you can start contributing, we can determine a reasonable timeframe for you to be completely out of debt. Starting now is a great ideal and will help you get out of debt quickly.
Many people make the mistake of waiting until after they complete college to start paying off student loan debt since their loans are in deferrment. The power of compounding interest works both ways! Compounding interest can either work in your favor or work against you! If you have $80,000 in loans your required payment based on a 20-year payment schedule and 5% interest rate is approximately $530/mo.
Guess What.......
About $300 of that is interest!!! If you have Subsidized Loans (you are NOT charged for interest during deferrment); therefore, any payments you make while you are in school or during that 6 month period after graduation will be used ENTIRELY to reduce your principal. I can breakdown the numbers even further to show you how beneficial it is to start early; however, I can see your eyes glazing over due to information overload so I will include that in my future post.
The moral of the story is! START EARLY!!!!
If you have any extra money - use it to pay off those loans! Every penny helps and anything you can scratch up can help you on your journey to becoming debt free.
Tax time is here. If you are receiving a refund, this is the perfect opportunity to contribute toward reducing your debt!
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