Let’s face it, student loans are hard to figure out. When you’re in school it’s common to rush and grab, what feels like, “free” money. But did you take the time to stop and learn more about your loan before you signed on the dotted line? If you didn’t, don’t worry you’re not alone!
If you’re about to be a new graduate or are a seasoned student loan vet, you still probably have some questions that you need answered. So here it is: our one-stop shop to answer all of the burning questions you’ve always had about your student loans!
How do I know what type of loan I have?
Student loans might seem like one size fits all, but the reality is that they vary widely. There are two main types of student loans available — federal and private. Federal loans are offered by the government whereas private loans are offered by individual institutions like banks or credit unions. It depends on your situation, but most people have a mix of both types of loans. No one ever said college was cheap!
Out of the two, federal loans tend to have more benefits for students. Not only do they typically have lower interest rates but they also come with more repayment options. Additionally, they often have forgiveness if you are late/miss a payment. So when you went to your student aid office back in the day, you were most likely offered a federal loan first when looking at payment options. There are several different types of direct federal loans available for students — subsidized, unsubsidized, PLUS, and consolidation. Each loan type is based on a number of factors like financial need and credit history.
Private loans require a bit more work. For students, private loans typically require having a cosigner who will take on the responsibility of paying the loan if you can’t make payments. If you have this type of loan, your parents probably had to cosign before you could get the cash.
Still not sure what type of loan you have? If you have a federal loan, most statements will include the type of loan you have at the top of your monthly statements. You can also call your loan servicer to learn more about the details of your loan. Pro-tip: whether you’re about to graduate or a long-time grad, have a record of what type of loan you have, the account number, the interest rate, and the amount of money you borrowed for your records.
How much did I borrow again?
There’s a lot we all remember (and don’t) about college but how much you paid to attend Econ 101 is likely not one of them. According to our #RealMoneyTalk 2019 Survey, only 42% of Americans are aware of how much student loan debt they currently have or had in the past. Most students are quick to agree to any and all loan offers because they assume they will be able to pay them off right after graduation. But when the first bill comes it can be quite a shock to see how much you actually agreed to.
The majority of students borrow the maximum amount they are allowed, but this is not always necessary. If you’re still in school, take some time to figure out how much you will actually need for the upcoming year(s). Don’t forget to factor in things like groceries, transportation, and rent before calculating where you net out pre-loan. If the amount you calculated is lower than the amount you’re allowed to borrow, take out less rather than more.
The best thing you can do for your future financial self is to keep track of how much you’ve borrowed. This way you’re more aware of what you’ll be expected to pay back and can find alternate ways of paying for expenses while in school.
For those of you who have already graduated and got the bill, don’t panic. While it can be a wake-up call to see the amount you owe, consider it your first debt lesson. Start by developing a repayment plan that works for you. You should always be making at least the minimum payments, but try to add in bonus sums here to make your principal disappear quicker.
P.S. If you have a large student loan, it’s not all bad news. Student loans actually have some hidden benefits like helping you establish a credit history – a benefit as long as you’re making those payments on time.
What even is an interest rate & do I have a good one?
Interest is the amount of money a lender charges you to borrow money from them. This is typically expressed as a percentage of the loan you’ve taken out and will accrue at a predetermined rate. These can be a fixed rate or a variable rate, meaning the percentage will either stay the same or change throughout the length of the loan.
Just like student loans, interest rates are not a one size fits all kind of deal. They vary based on the type of loan, when you borrowed, and multiple other factors. Federal student loan rates are determined by the government whereas private lenders are determined by each institution.
So how do you know if you have the right rate for you? This will depend on your specific financial situation. If you’re able to pay back your loan quickly, a variable interest rate will probably be right for you. This type of rate will give you low payments to start and then will increase based on the length of your loan. But if you’re unsure about how much you’ll be able to allocate to payments, you’ll want to have a fixed rate loan. This way you’ll be able to know how much you’re expected to pay each month.
You could also be wondering if your interest rate is high, low or average. One way to find out is by having the #RealMoneyTalk with your friends to see if you’re in a similar place. Another way to tell is if your payments are only paying down the interest on your loan and not the principal. You’ll want to make sure that you’re making progress on the principal each month to shorten the length of the loan.
If you’ve realized that your loan terms are not working for your current financial situation, the good news is you’re not stuck! You can refinance your student loan to get new and improved terms that meet your needs now. Several companies like SoFi offer competitive refinancing options to get you on the right track.
So when is this all due? Can I start paying it back now?
For federal loans, your first payment is due six months after your graduation date. This grace period applies for everyone, no matter if you graduate in the fall or spring. Private loans vary depending on the lender, but the terms of your loan should explicitly say when your first payment is due.
And yes if you have a federal loan you can start paying it back while in school! However, some private loans do not allow early payments. Double check the terms of your loan to see when you can start making payments. If you have to wait until a certain date, start setting aside repayment money now so you’re prepared when you get the first bill.
I have a lot of loan-specific questions, what source do you recommend?
There are many great sources out there to teach you all you need to know about student loans! If you’re still in school, your financial aid office can provide a lot of answers to your questions like who is your servicer, what is the amount you borrowed, and how to contact your lender. However, in most cases, it’s helpful to reach out to your loan servicer directly to get all the information you’re looking for.
Hopefully, this all gives you more guidance on how to navigate your student loans. It’s not easy figuring out the ins and outs of loans but once you learn the ropes you’ll be on your way to your debt free day in no time!