Today, two-thirds of college students leave school with at least some debt from college loans. The typical debt is approaching $25,000, a figure that includes not merely the first amounts borrowed but, for many students, accumulated interest as well.
For students who hold government-issued federal student loans, repayment on those loans won’t begin until half a year after graduation, where point most students will enter a regular 10-year loan repayment period.
Loans That Sit, Getting Bigger
While a student is enrolled in school at least half-time and throughout the six-month grace period following the student leaves school, even though payments on federal school loans aren’t required, interest on the loans continues to accrue.
If the loans are unsubsidized, the accrued interest is likely to be included with the loan balance and capitalized, and the student will be responsible for paying that interest.
With subsidized federal college loans – which have smaller award amounts than unsubsidized loans and which are awarded only to those students who demonstrate financial need – the federal government can make the interest payments whilst the student is in school, in a grace period, or in another authorized period of deferment.
The majority of most students’ college loan debt will contain unsubsidized loans – loans that get larger as time passes and you make your path through college, simply due to the buildup of interest.
Preventing Interest Bloat
As a college student, you can find steps you can take, however, to counteract this ballooning of one’s school loans title loans St Louis. There are numerous ways that you can manage your student loan debt and rein in the added burden of accrued interest charges, both while you’re in school and after graduation.
Seemingly small steps can allow you to significantly reduce the amount of college loan debt you’re carrying at graduation and could shorten the amount of time it will get you to repay those loans from a decade to seven years or less.
1) Make interest-only payments
Most student borrowers choose not to produce any payments on their student loans during school, leading to the loans getting larger as interest charges accumulate and get tacked onto the first loan balance.
But you can easily prevent this “interest bloat” by just making monthly interest-only payments, paying adequate to cover most of the accrued interest charges each month.
The interest rate on unsubsidized federal undergraduate loans is low, fixed just 6.8 percent. Even on a $10,000 loan, the interest that accumulates every month is merely $56.67. By paying $57 per month while you’re in school, you’ll keep your loan balance from getting greater than everything you originally borrowed.
2) Make small, even tiny, payments in your principal
Beyond keeping your loan balances under control while you’re in school, you can actually reduce your debt load by paying a little bit more every month, in order that you’re not merely covering interest charges but additionally making payments toward your loan principal (the original loan balance).
Loan payments are normally applied first to any interest you borrowed from and then to the principal. Payments that exceed the amount of accumulated interest is likely to be used to cut back your principal balance. By paying down your principal balance while you’re still in school or in your grace period – even if it’s only by $10 or $15 per month -you’ll reduce the size of your college loan debt load by at least a couple of hundred dollars.
And by reducing your total debt amount, you’re also reducing the size of your monthly loan payment that’s likely to be required after you leave school, in addition to the amount of time it’s likely to get you to repay the remaining loan balance.
3) Don’t ignore your private student loans
If you’re carrying any non-federal private student loans, use this prepayment strategy on those loans as well.
A few private education loan programs already require interest-only payments while you’re in school, but many private loans, like federal loans, allow you to defer making any payments until after graduation. As with federal loans, however, interest will continue steadily to accrue.
Private student loans generally have less flexible repayment terms than federal loans and higher, variable interest rates, so your private loan balances may balloon a great deal more quickly than your federal loans and can quickly spiral in to the thousands of dollars. Making interest-only or principal-and-interest payments will allow you to keep your private loan debt under control.
4) Try to find non-loan sources of student aid
As you make your path during your second, third, and fourth years of college, if you learn your monthly student loan interest payments are creeping up beyond everything you can comfortably pay, that could be a sign that you’re relying too much on college loans and your debt load has become significantly more than you can manage.
Take steps to cut back borrowing by seeking out scholarships and grants, reducing living expenses, or finding part-time work.
As a student borrower, you ought to never lose monitoring of just how much you borrowed from in school loans. By maintaining a continual link with your student loan balances through monthly prepayments, you’ll have a much better sense of where you stand financially throughout college and when you graduate.