Four ways to take control of student loans before graduation
For many students,聽loans are聽as fundamental a part of college聽as聽ramen noodles and聽all-nighters. Just because you need them to fund聽your education, though, doesn鈥檛 mean you should borrow blindly until graduation comes around.
鈥淎聽lot of times, students make the mistake of not looking until right before they鈥檙e going to graduate and are shocked at the amount that they鈥檝e borrowed,鈥澛爏ays Nicole Solomon,聽assistant director of outreach and communication for the financial aid office at聽West Virginia University.
Take these four聽steps to minimize your loans, and you鈥檒l be in a much better position to pay them off 鈥� and focus on the fun parts of post-college life.
Know how much you need 鈥� and take only that.
Your college will decide how much federal loan money to offer you based on the results of your FAFSA. After your school takes into account the need-based aid, grants and scholarships you鈥檙e getting, it will offer you loans up to the cost of attendance, Solomon says.
But not all students need to take the full amount of loans they鈥檙e eligible for. Maybe you worked over the summer and saved up a few thousand dollars, which wouldn鈥檛 be reflected on your FAFSA, and you want to put that toward tuition.
鈥淛ust because it鈥檚 been disbursed and paid to them, it does not mean they have to keep that loan,鈥� Solomon says.
Most colleges have a financial aid page where you accept your loans online at the beginning of each school year. Before you accept your annual award, look at the balance you鈥檝e accrued so far and think critically about whether you need the full amount. You can accept a partial amount of the loans offered, or accept it all and then return any unneeded portion within 120 days of the disbursement date.
Monitor your loans throughout the year, to keep aware of the debts you鈥檙e taking on, and further reduce the amount you need to borrow by cutting costs wherever you can. Rent your textbooks instead of buying them, opt for a cheaper cable package if you live off-campus or rely on public transportation rather than a car if that鈥檚 possible.
In other words: 鈥淟ive like a college student when you鈥檙e in college so you鈥檙e not living like a college student for the next 10 years after you graduate,鈥� Solomon says.
Pay the interest on your loans聽while you鈥檙e in school.
Private loans and unsubsidized federal loans accrue interest while you鈥檙e studying. When you start repaying them, that interest will get capitalized, or added to the聽principal balance of your loans 鈥� so you鈥檒l effectively pay interest聽on the interest that added up聽during college.
For instance, an $8,000 loan you took out freshman year at聽a 3.86% interest rate will accumulate聽$308.80 in interest each year you鈥檙e in school, or $1,235.20 total. When you graduate, you鈥檒l have to pay back $9,235.20, and 3.86% interest will be tacked on to that higher amount. It鈥檒l take longer to reduce your聽balance than if you鈥檇 paid off that聽$308.80 every year.聽But since doing so isn鈥檛 required,聽and mail from servicers is easy聽to ignore, many students don鈥檛 take advantage of this option.
鈥淭hey get a bill for it, they just don鈥檛 have to pay it,鈥� says Jefferson Blackburn-Smith, vice president for enrollment management at Otterbein University in Westerville, Ohio.
Every year, your聽聽or lender will send聽you a billing statement showing how much interest has accrued on your loans. Log in to the servicer鈥檚 online portal to pay it off before it capitalizes, and you鈥檒l聽keep your loan balance from swelling when you start repayment.
Understand your聽repayment options before exit counseling.
Even if you鈥檙e keeping track of how much money you鈥檝e borrowed, you might not聽realize how that translates to a monthly payment after graduation. Federal Student Aid鈥檚聽tool allows you to enter your loan balances, interest rates and projected income to see what you鈥檙e likely to pay.
You鈥檒l notice you have options beyond standard repayment, which breaks up your loans into 10 years鈥� worth of fixed monthly payments. You can choose graduated repayment, during which the amount you owe increases every two years, or an income-driven plan like聽(IBR),which caps your monthly payments聽at 10% of your income and forgives your loans after 20 years if you qualify.
Just knowing about聽IBR before you鈥檙e prompted to pick a repayment plan聽during your required exit counseling session聽will keep you from聽paying more than you need to when you start repayment, Blackburn-Smith says.
鈥淚聽don鈥檛 think families think about IBR yet聽鈥� it鈥檚聽not thoroughly understood 鈥� and so not as many students look into that at graduation as they should, to understand if this is something that would be meaningful for them.鈥�
Do your best to graduate in four years.
The sooner聽you聽graduate from school, the less money you鈥檒l owe. It鈥檚 a simple formula, but one that a lot of college students don鈥檛 consider when they鈥檙e deciding how many credits to take each semester,聽Blackburn-Smith聽says.
鈥淚聽don鈥檛 think students think about that, when they鈥檙e dropping a class that isn鈥檛 conveniently timed for their schedule, what the implication is when they leave school.鈥�
You can graduate in four years by taking聽a full course load each semester or enrolling in summer聽classes聽to catch up on credits, especially if you聽switched聽schools or majors. Decide on a course of study by聽the end of your sophomore year so you don鈥檛 have to take additional classes to meet a new major鈥檚 requirements.
鈥淚t鈥檚聽something that they just need to be thinking about,聽because that extra year of debt really is聽problematic for some students,鈥� Blackburn-Smith says.
Smart student loan repayment starts聽sooner than you might think. Get ahead of your loans while you鈥檙e in school, and you鈥檒l be much less likely to owe more of your precious first paychecks than you聽thought you would.
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