How Refinancing With a Private Student Loan Saves Money

Overall, about 45 million Americans owe over $1.6 trillion in student loan debt. The average student debt is almost $30,000. That is quite a scary number.

Of course, the number can fluctuate from person to person. My student loan debt exceeds $100,000. Others only need to borrow a few thousand.

Regardless of the amount, student loan debt is a heavy burden to bear and everyone wants to get out from under it. We hear of potential get out of debt options and want to take advantage of them, but they can be a tad bit confusing- sometimes more than a tad bit.

Refinancing your student loan with a private student loan is one of those options, but it does not have to be confusing. We are going to go over the ins and outs, ups and downs of refinancing with a private student loan so you can determine if it is the right move for you.

Ways Refinancing With a Private Student Loan Saves Money

I would love to tell you that refinancing with a private student loan can solve all of your problems, but that would be a lie. It can, however, offer some benefits that may far outweigh the consequences and risks for you. Let’s take a look at the good side of refinancing with a private student loan.

Interest Rates

One of the best ways that you can save money on a student loan is by refinancing with a private student loan is through the interest rate. Sometimes, a private student loan can offer a much lower interest rate, and even a 1 percent variation in your interest rate can make a big difference in the overall amount you pay.

A $1,000 loan with a 6 percent interest rate means you will pay $60 in interest. At a 5 percent rate, you will pay $50 in interest. Granted, that is not a big difference by itself, but most of us owe much more than $1,000 on student loans. Additionally, that interest is simple interest. If the interest is compounded, that difference grows exponentially.

Do remember, though, that not all private loans will offer a lower interest rate. Some will offer lower interest, but the extra costs wipe out the benefit- more detail about this in a moment. If you are going to refinance, do some shopping around before choosing a lender to make sure you are getting the best rate.

Longer Repayment Terms

When you refinance with a private student loan, you can choose a longer repayment term. In ways, this can save you money- especially on a monthly basis as you are not paying out as much. Additionally, if the interest rate varies and goes much lower down the road, you will save in interest.

If you want to find a private student loan and don’t know where to look, Loanry can help you make loan shopping a little bit easier. Enter the information below and see which lenders may offer a loan for you.

Lower Monthly Payments

For the most part, refinancing your student loans mean that getting a new loan that has more favorable terms. This usually means extending your payment term, but not always. This really depends on you. If you have 15 years left on payments, you might choose to refinance for another 15 years or you may choose 20 or 25 years. It will depend on your decision, though sometimes the lender will decide according to your financial situation.

If you choose a longer repayment term, you will have lower monthly payments. This does not necessarily mean that you will owe less overall, but it can help you save money every month, which you can then put toward paying off other debt, invest, or any number of things that can help you financially.

While extending your repayment term can help you with lower payments, it is not always worth it. Take a look at the terms of your loan offer and determine how much interest you will pay over the life of the loan. If you will be paying thousands more in interest, refinancing with a private student loan is probably going to cost you a lot more than it saves you.

Difference Between Refinancing and Consolidating

With such high student debt, it should come as no surprise that student loan borrowers are looking for debt relief. Two common ways of doing this are student loan debt consolidation and student loan refinancing, but these often get confused with one another. Let’s see if we can clear the confusion before moving on.

Consolidation means that you put multiple debts into one debt and then make one payment each month. Perhaps you owe $50,000 in student loans that come from five separate loans, meaning you are making five payments each month. This can be expensive and confusing. Instead, you could consolidate all of those loans into one $50,000 debt.

Refinancing means trading one loan for another. Basically, in the $50,000 case, you would borrow the $50,000 from another lender, repay your loans, and then pay monthly to the new lender. You might have to borrow more than one loan to do this, depending on how much you can get approved for each loan. For instance, you might have to borrow five $10,000 loans instead of one $50,000 loan. As refinancing can only be done through private lenders, your approval is based on your credit.

When Refinancing With a Private Student Loan Could Hurt More Than Help

Like I said, refinancing with a private student loan cannot magically solve all of your problems. In fact, there are times that it can actually create some. Refinancing with a private student loan can be really beneficial at times, but there times that it can hurt your wallet much more than it can help. It will ultimately be up to you to compare the pros and cons to decide if it is a good idea. Consider the following when you are thinking it through:

New Loans Mean New Fees

Remember those extra costs I mentioned a moment ago? Let’s dig into those for a moment. When you take out a loan, there are often fees that come with it. The names and types of fees depend on the type of loan you are getting. For instance, fees for a mortgage are called something different than fees for student loans or even cars.

Regardless of their names, they are all fees, which means you pay out more money. Not all loans charge fees, but it is important that you know if yours does. Some fees are expensive- expensive enough that they offset any savings you could get by refinancing with a private student loan. Some are low enough that it is still worth it.

Still, you need to be aware of any associated fees and be sure that it is worth refinancing. If you will not be saving money, extending your repayment term, or at least lowering your monthly payments, there really is not a reason to refinance.

Swapping to a Private Student Loan Means Missing Out on Special Programs

One of the best things about federal student loans is the programs that are available. For instance, if you happen to experience financial hardship, you can apply for an income-driven repayment plan. Depending on your situation, your payments can be lowered all the way down to $0 per month while you are experiencing your trouble.

There are also student loan forgiveness programs that only apply to federal grants. If you do refinance with a private student loan and have any financial trouble, you will not be able to take advantage of the government programs. This does not have to be a deal-breaker, but it should make you stop and think. If you are already struggling a lot financially, do not have a very secure job, or expect any negative changes to your finances, you should probably stick with federal loans.

Other Refinancing Facts to Consider

There are a couple of additional things you should know before making your decision.

You Can Refinance More Than Once

Here’s some good news: There is no rule that says you can only refinance once. Let’s say that you do end up having some trouble making your refinanced loan payments down the line due to job loss or some other factor. While you cannot take advantage of government programs, you can try to refinance with another private student loan to get lower payments. If you have been making your payments on time for a while, your current lender may even refinance your loans for you.

Additionally, some lenders offer periods of deferment due to job loss. This is not true with all of them, though. Be sure to find out when you initially refinance so you will know what options are available to you.

You Can Use Refinancing to Simplify

Having to pay multiple loans can get irritating and exhausting. When I look at my student loan service provider’s website, my anxiety kicks in and I get a headache. This is not because of the amount I owe- though that alone is enough to induce panic. My problem is actually trying to figure it all out.

With the more than $100,000 I took out in student loans, there is what seems to be a never-ending list of smaller loans to make up the full balance. Each has its own interest rate and other details. Any time I try to formulate a plan to pay them off, I freeze up. And considering I am normally a very effective planner, this says something. There are just too many loans to dig in and figure it out.

That is one thing I love about both refinancing and consolidating- the potential to simplify. It is usually a little easier to consolidate your loans through the government or your loan service provider, but if you can get approved to refinance a large amount, you can still decrease the number of loans you have out. Can you imagine only making one or two payments a month instead of making 10 or more? I don’t know about you but I could definitely help my nerves.

Private Lenders VS the Federal Government

Here is an important thing to note: Private lenders can refinance federal loans but the federal government does not consolidate private loans. This means that if your loans include private ones, the government will not be able to help you with those. You can still take advantage of their ability to consolidate your federal loans, but you will have to take care of your private loans separately. Or you could use a private lender to handle all of your loans.

Before Refinancing With a Private Student Loan

If refinancing sounds like the choice you want to make, there are a few things you need to do before applying.

Think It Through- Again

First and foremost, think about it again. I listed pros and cons here but they may seem a little vague to you. Sit down with this guide, a pen, and a piece of paper. Reread the pros and cons and turn them into more personal facts. You need to know that you are able to make payments on time, or you can end up with a default on your student loan.

For instance, you might say something like, “Refinancing for a longer-term means that I can have lower monthly payments. With the money I save each month, I can pay my mortgage off quicker” or “Work one less day a week so I can spend extra time with my family” or whatever your thoughts are.

Doing this will help you determine how refinancing may or may not actually help you, help you determine what your motives are for making the move, and help you have a plan for what to do with any leftover money. Through this exercise, you will be able to make a much more informed decision about what to do.

Check Your Credit

Remember, your credit is what will get you approved or rejected for a loan and determine your interest rate. For the best results, you, of course, want a really good credit score. Before you make any moves, check your credit.

There is no magic number for approval as each lender has their own criteria. However, the higher above 600 your score is, the better options you usually have. If you are in the low 500s or even lower, you might be much better off consolidating your loans through your loan service provider or a government program. Cleaning up your credit takes time, and the lower it is, the longer it usually takes. Unless you can make some drastic changes in the next month or two, refinancing with a low-interest rate might take too long. And if you are already struggling to pay, you need faster results.

If, though, you have a bit of a higher credit score but it is still not quite high enough to lower your interest rate, you could make some quick changes to your credit. Obviously, what you can do and how fast you can do it depends on what is on your credit, but here are a couple of ideas:

  • Try disputing anything that is not correct, including any personal information like old addresses or employers
  • Try to pay off or pay a very large chunk of what you owe to a debt on your credit
  • If something is about to hit your credit, like a collections account, contact the creditor now and try to work out a payment plan. This could prevent the debt from ever hitting your credit report at all. **Notice I said “could”, not will. Some creditors will report it anyway while you pay on it. Some will work with you to keep it off. Just talk to them and see if they will not report it as long as you make your payments**

Gather Your Information

Any time you are going to apply for credit, you need to have your documentation ready. This includes your personal information, of course, like your ID, social security card, and proof of income. Also, take any proof of collateral you have.

When you secure the loan with something of value- like a piece of property or a car- you have a better chance of a lower interest rate and a higher loan amount. Do not, however, secure your loan with anything you cannot afford to lose. It is better to simply consolidate through the government than to refinance by using your home as collateral and then using your home.

Conclusion

If you are in a lot of student loan debt and are looking for a way out, refinancing with a private student loan might be a good move for you. Just don’t dive into the deep end head first without looking down at the water below. Consider your options carefully and seek professional advice if you feel overwhelmed by the decision.

How to Get Grants for College to Avoid Student Loans

Happy smiling millennial girl holding paper document, received good news letter, university admission notification.

College is not cheap- this is a widely known and well accepted fact. While tuition varies depending on the college and degree, you are looking at spending at least tens of thousands of dollars. As nice as it would be, most of us do not have that kind of money lying around, so we have to find a way to pay for it.

Grant Options for College to Avoid Student Loan Debts

For many people, student loans immediately come to mind, but those should be a last resort. Trust me when I say that student debt is not something you want to deal with. My student loan debt is over $100,000. I could literally have bought a house with that amount. And the monthly payments are more than $1,000, which is a very big portion of my income. I often feel like I would have been better off skipping college and just working my way up through some company, and that is not a good feeling after you have worked hard to earn your degree. If you can avoid feeling that way, you definitely should.

Student loan debt is difficult to get out of, and most people stay stuck in it for years and decades. The average student debt ranges from $26,900 to $55,882 depending on the state and the type of school the student attends. Overall, according to student debt statistics, Americans are in more than $1.6 trillion of student loan debt. Sadly, a lot of this debt could have been avoided, but most people are not aware that there are other options available.

Before you resign yourself to debt, you should look for grants for college. Grants do not have to be repaid, so if you can get grants for college, you can avoid that student debt. At the very least, even if you have to get some student loans, you can minimize your student debt by getting grants for college.

This guide is intended to give you a starting point for getting grants and some information on grants that you might qualify for. It is in no way all-inclusive, but it can give you a great start.

Fill Out the FAFSA

The first step you need to take for any type of financial assistance is to fill out the FAFSA- the Free Application for Federal Student Aid. It asks you a series of questions regarding your financial information. If you lived with your parents the previous year, it will also ask for their information.

Before going any farther, let’s address the fact that not every student’s parents will be willing to help with the FAFSA and some are not able to. This does not automatically disqualify you for aid. If your parents are unable to provide their information due to being mentally incapacitated, incarcerated, or they are abusive, you can fill out the FAFSA, indicate that you cannot provide their information, and then call the financial aid office to apply for a student dependency override.

If your parents are simply unwilling to help, it changes things a little. You should still fill out the FAFSA and indicate that you cannot provide your parents’ information. Then, as soon as possible, call the financial aid office at your school to explain the situation. The lack of parental information may disqualify you for some aid, but not all. If there is anything you can apply for, the aid office should be able to help you. Many grants are not dependent on parental information, anyway.

After you have filled out the FAFSA, you will receive a Student Aid Report (SAR). It will provide your EFC, or Estimated Family Contribution, and the estimated amount of aid you might qualify for. This report will let your college know if you will qualify for grants, how much of your tuition should be covered, and if you will need additional aid.

Even if you do need more aid for school, you do not immediately have to jump to student loans. There are other grants for college that you may be able to receive and you should exhaust those possibilities first. Let’s go over some of the most common grant options:

Federal Grants for College

Federal grants include Pell grants, one of the most well-known grants in America. These are grants that are based on financial need. Most Pell grant funds go to students whose total family income is less than $20,000, though the family income of up to $50,000 sometimes qualifies.

There are other stipulations, such as the student is looking to earn their first Bachelor’s degree, but exceptions are made for some post-graduate degree programs. The amount of the Pell grant often changes every year, and student awards are determined by different factors. However, the maximum Pell grant amount for the 2020-2021 school year is $6,345.

That amount is enough to cover some community college tuition. When I attended my local community college, the Pell grant was enough to pay for all of my classes and my textbooks. Even if it does not pay all of your tuition, it can still help tremendously.

In addition to the Pell grant, you might qualify for the Federal Supplemental Education Opportunity Grant (FSEOG). Every year, the schools that participate in this program receive a set amount of funds. The school then determines which students have the greatest financial need and award them some of those funds, which could be anywhere from $100 to $4,000. This is a program you should look into as early as possible. The schools only receive these funds once a year, and once the money is gone, you have to wait until the following year.

State Grants for College

After federal grants are state grants for college. The types of grants available vary according to the state.

Some states provide grants to minorities. Others might specialize in assisting those with a disability or who were in the foster care system. Other states might award grants to students in certain fields that desperately need to be filled in that state. Your school or state agency should have the necessary information for these grants.

Grants for Women

As there is an apparent difference between men and women in their opportunities and income levels, some organizations have taken an active role in making changes. There are several grants available specifically for women, including The P.E.O. Program for Continuing Education and the Soroptimist Live Your Dream Award.

Grants for Minorities

There are also grants geared toward ethnic minorities, such as Asian Americans, Hispanics, Native Americans, and more. Sometimes, these grants will be made available through filling out the FAFSA. Others take more research, but your school should have some information on them.

Do not just think about the federal grants available to minorities, either. Check with any ethnic organizations or groups. I am Native American. The tribe I am registered with providing a certain amount of grants and scholarships each year. These are apart from any that my schools knew of. It is always best to do your own research as sometimes private organizations do not advertise their grant programs.

TEACH Grants for College

If you are going to school to be a teacher, you should look into TEACH grants for college costs. While these do not have to be repaid, you do have to agree to teach in a school that is in an underserved area for four years after graduation. It seems like a pretty good trade off – you get help with college costs and you get the chance to impact the lives of children who need caring teachers.

Military Grants for College

If one of your parents served in the military in Iraq or Afghanistan after 2001 and passed away because of it, there are grants available to you. Talk to your school counselor or the financial aid office at your college of choice for information on these.

School Grants for College

Individual colleges also have sometimes have grants and scholarships for their students.

I was once awarded a scholarship for keeping my GPA high in the first two terms of college. The award was only about $800 each term, but that definitely helped cut back on my student loans.

Talk to your school about what is available from them. They might not be available in your freshman year, but you can start working toward them from the beginning.

Academic Competitiveness Grant (ACG)

The Academic Competitiveness Grant is an additional aid for those who qualify for the Pell grant. In order to be eligible, you have to have completed what is termed a “rigorous secondary school program of study” with a minimum of a 3.0 GPA. The Secretary of Education determines what programs qualify each year, but it is referring to programs such as Honors and AP courses. You can speak to your school counselor about the ACG- he or she can help you determine if you are eligible.

SMART Grants for College

Pell grant recipients should also consider the SMART Grant program, which is the National Science Mathematics Access to Retain Talent. It is awarded to students who are entering STEM college programs, foreign languages, and other high demand careers. There are other requirements, including being a junior or senior in your degree program and having a minimum 3.0 GPA. This award is up to $4,000 per year.

Special Interest Grants

If you are a musician, artist, photographer, vocational student, or something similar, you might be able to find grants for your specific interest. These may require a little more research on your part as they will likely come from local organizations, but you might find some that are nationwide. Talk to your teacher as they probably have some inside scoop.

Competitions

Every year, there are writing competitions, art competitions, science competitions, and more. Some of the prizes include grant and scholarship money. Whatever you are interested in doing, look for competition. Enter as many as you can that award college aid or cash to the winners.

Employer Grants

If you have a job, your employer may have their own grant program. I have heard of quite a few companies having grant and scholarship programs. Some were large and others were small. If your employer does not, ask your family members if any of their employers do. You never know what you might run across.

Tips for Getting Grants for College

Start Early

One of the biggest mistakes among college students is waiting until the last minute to apply for their financial aid. Doing so is only working against yourself, though. If you can, it is a good idea to start your research in your freshman year of high school. Even if you cannot yet apply, you will know what you need to do to be eligible and can mark the application date down now.

If you are past your freshman year, it’s okay. Just start as soon as you can. Even if you do not have time to apply for them all this year, you can always apply next year.

Apply for as Many as You Can

As you can see, you can get more than one grant at a time, so there is no reason to only apply for one. You should take the time to apply for as many as possible. Who cares if you have to get 10 small grants? It all adds up. If you apply for enough, you might not need a penny of student loan money.

Apply Every Year

Applying for grants should not be a one time thing for your entire college career. You should be searching for and applying for them every single year. Some grants are not available until you have completed a certain number of classes, like the SMART grant mentioned above. The award I received only came after I completed a full year with that high GPA. Take some time each and every year to research what you qualify for.

Stay Organized

In the midst of applying for 35 grants for college, it is easy to forget what you have and have not yet done. You should try to maintain a list of the grants you have applied for and need to apply for. You can keep this on a sheet of paper if you like, but if you have a spreadsheet program, you can keep up with more details to help you stay on track. Start by making the following column headings:

  • Grant Name
  • Grant Purpose: Is it for minorities, STEM, simply income based? This will help you remember what you actually applied for.
  • URL for application: Whether you need to revisit the site later or you have not yet filled out the application, keeping up with the website to apply on is a wise move. And, if you are going to reapply the following year, you already have the information on where to do so.
  • Status: Have you applied yet? Are you awaiting results? Have you been approved?
  • Date of Application: It is important to remember when you applied. Many times, an application will tell you about how long it takes to receive results. Keeping up with your application date will let you know how much longer it should take or if you should reach out to someone because it is taking too long.
  • Approval Amount: If you are approved, type the amount into this box. This will help you keep up with how much of your college costs are currently covered and how much farther you have to go.

This spreadsheet can make the application process a little smoother. You can pull it up again next year when it is time to start applying for grants, too. You might also use it to keep up with information on grants that you do not yet qualify for but will in the future. It is a lot easier to make note of that information now than to try to remember where you found it next year.

Conclusion

After you have exhausted all other possibilities, you may still need to consider student loans. If this is the case, be sure that you shop around for the best ones. Different student loans have different terms and interest rates, so you need to research what you are getting. You can rely on Loanry to help you with this.

Additionally, keep in mind that student loans are not the only way to pay for school. Compare the rates and terms to personal loans as well. You might find one that is more affordable and that you can pay off much easier. You do not want to end up as another student loan debt statistic, so you should do all that you can to minimize student debt or avoid it altogether.

Student Loan Statistical Overview: By The Numbers

Student loan statistical overview by the numbers cover photo

The total amount of student loan debt in 2020 is over $1.67 trillion according to the US debt clock. In terms of a student loan statistical overview, the total credit card debt is smaller at only $1.08 trillion. The most revealing thing about this part of our student loan statistical overview is that the average balance on credit cards is $6,747. And the average balance per student for a student loan is $36,847.

More than 70% of American college students borrow money for college as student loans. This represents over 44 million people in the U.S. that have student loan debt.

The average personal debt per U.S. citizen is only $61,391 (February 2020) and that includes all the money borrowed for home mortgages. Student loan debt is already more than half the average indebtedness for most people. If students want to own a home too, then they will go further into long-term debt. When analyzing their student loan statistical overview for the amount of debt that people carry, we find that the next generations carry more debt than the previous ones.

There are so many who did not think about the ramifications or take the time to learn about personal loans and the student loan statistical overview before they just decided to go ahead and borrow what they needed to go to school. What good is a degree if you end up working at a coffee shop? On the other hand, there is not any easy way to advance in a career without having a good education. The main takeaway from our student loan statistical overview is that student loans have value for certain occupations that came up in our student loan statistical overview. But the repayment takes at least ten years and sometimes much longer.

Student Loan Statistical Overview

To avoid being one of those who cannot repay their student loan, the first step is to consider the cost of student loans. Like all personal loans, you must repay student loans. However, student loans are unlike other personal loans. When you conduct a student loan statistical overview, you find out that there are few ways to get out of paying for student loans.

Bankruptcy gets rid of other personal debts but not student loans. The collection process on defaulted student loans may chase a person for the rest of their lives. It does not even help if you leave the country.

As far as personal loans go, the average college debt is a big part of the indebtedness of most young people and many of their parents. The average student debt interest rate for 2019-2020 is about four and one-half percent (4.53%) for undergraduates and over six percent (6.08%) for those in graduate school. Parents who co-sign for a graduate school loan are paying over seven percent (7.08%). This is at a time when savings interest rates are less than 1% and the prime rate is 5.5%.

A Student Loan Statistical Overview Shows the Country-Sized Mountain of Debt

The student loan statistical overview shows that if student loans were a country, then, they would almost make the top-ten list of the countries with the highest gross domestic product (GDP).

The top ten countries ranked by GDP are:

  1. United States ($21.41 trillion)
  2. China ($15.54 trillion)
  3. Japan ($5.36 trillion)
  4. Germany ($4.42 trillion)
  5. India ($3.16 trillion)
  6. France ($3.06 trillion)
  7. United Kingdom ($3.02 trillion)
  8. Italy ($2.26 trillion)
  9. Brazil ($2.26 trillion)
  10. Canada ($1.91 trillion)

The GDP is the total value of all the products and services produced by a country in a year. The student loan statistical overview shows student loan debt is almost 8% of the American GDP. It is considered normal for the U.S. economy to grow at about two to three percent per year.

Imagine if all the student loan debtors repaid everything in one year. That is a huge amount of the economy. However, there is no chance that will happen. In fact, the student loan statistical overview shows there is an increasing chance that a large portion of the student debt will remain unpaid. Pew research reports that 20% of student loan debt is already in default. The default for a student loan is one with no loan payment for over 270 days. This represents $334 billion of student loans that may remain unpaid.

How do You Know What Your Student Loan Payment will be?

The one most important take away from our discussion of student loan debt is to learn how to calculate what your payment will be in the future. It also depends on what type of student loan you want to take. Think about this before taking on more debt. Try to only borrow the minimum amount that is necessary to attend school.

If you borrow the current average amount of $36,847 for undergraduate school at the current interest rate of 4.53%, your monthly payments will be $382 for ten years (120 payments). At the end of ten years, you will have paid back a total of $43,551 and that includes $6,704 in interest.

If the same loan amount of $36,847 is for graduate school, the interest rate will be higher at 6.08%. Your monthly payment will be $411 for ten years (120 payments). At the end of ten years, you will have paid back a total of $45,983 and that includes $9,136 in interest.

If the same loan amount of $36,847 is for graduate school; however, the loan is co-signed by your parents, then the interest rate will be higher at 7.08%. Your monthly payment will be $429 for ten years (120 payments). At the end of ten years, you will have paid back a total of $47,584 and that includes $10,737 in interest.

Paying $429 per month for ten years is a lot of money. It is possible in some rural towns to rent a studio apartment for that amount and live off the “gig” economy by working remotely on freelance jobs.

How Much Student Loan Cost for a Different Occupations

If you dream about being a dentist, doctor, veterinarian, or a lawyer and using student loans to get your degree, then you are going to have to make the big bucks to be able to afford the loan payments, which will be staggering.

The average amount for a student loan taken by those entering these professions is:

  • Dentist — public school $239,895 and private school $341,190
  • Doctor — $196,520
  • Veterinarian — $167,535
  • Lawyer — $120,000

Using the current graduate school rate of 6.08%, the monthly payments to repay the student loans for these professions who take on these amounts of debt are:

  • Dentist — A loan for a public school of $239,895 would require the payment of $2,673 per month and for a private school loan of $341,190 would require the payment of $3,802 per month.
  • Doctor — A student loan for $196,520 would require the payment of $2,190 per month.
  • Veterinarian — A student loan of $167,535 would require the payment of $1,867 per month.
  • Lawyer — A student loan of $120,000 would require the payment of $1,337 per month.

Oh my goodness, I get a toothache just thinking about having to pay back $3,802 per month on private dental school student loans. That amount is a luxury house payment. No wonder dental work costs so much!

To calculate your payments you can go online and use a loan calculator and enter your loan amount and interest rate.

Even though there is the allowance for more borrowing than just for the tuition to help pay for living expenses, resist the temptation to waste this money. It is very easy to over-borrow on student loans and then not be able to pay it back. Work while attending school if possible as well. Avoid frivolous spending of the student-loan money on things that are not necessary.

Who Struggles to Repay Student Loans?

According to Pew, one large group who struggles to pay off student loans are people who borrow the least, usually less than $10,000. The reason for this is that they started school and only went for a short time and then dropped out. Essentially they borrowed money and got nothing to show for it.

Without the benefit of having a degree, there is little chance of a financial improvement possible that would increase a person’s income. These college drop-outs have more trouble finding a decent job and have student loan debt on top of it. Student loan payments are unpaid when there is not enough money to pay for rent and food. Over one million students are going into student loan default each year now, so this group is increasing.

A college degree is not as valuable as before. Even though it costs more than ever to attend college, a bachelor’s degree is simply not the same value as it used to be when trying to land a good job. To be competitive, you have to have a degree. The problem is that so many other candidates have the same thing. Many employers consider a college degree the equivalent of what it used to mean to have a high school diploma.

Payback Pressure

To some, student loans feel like “free” money because it is so easy to get a student loan. Many students take out a loan and never have any idea about how much they will be required to pay until they get their first student loan payment bill. That is when the reality of these large monthly payments starts to sink in. The amounts are not trivial.

The average monthly payment for a student loan is between $245 and $304 per month. That is a very large expense that is more than a car payment, more than most monthly food budgets, and a huge portion of what most people pay in rent.

What Happens When a Person is in Default on a Student Loan?

Defaulting on a student loan causes problems to mount up. There are collection charges added to the amount owed. There is likely to be wage garnishment. Wage garnishment is a legal procedure that requires an employer to pay a portion of your earnings to the loan servicing company before you get the rest of your paycheck. It can be as high as 25% of your net pay.

No Federal Tax Refunds and Loss of Eligibility

Money can be withheld from federal tax refunds to repay student loans. Eligibility for other federal aid programs may be lost if a person defaults on student loans. Once a student loan goes into default it can also block a student from going back to school and getting more student loans.

Credit Rating Disaster

For every month that you are late on making a student loan payment, there is harm done to your credit rating. These records can stay on your credit history report for up to 10 years. If you default on a student loan, there is serious damage to your credit score. This makes it harder to get other loans, like for a house or a car. If you do get another loan, you will pay higher interest rates for the money because you have a bad credit score.

If you are looking for a good job to earn enough money to pay off your student loan, your job application may receive a denial because you have a bad credit history just because your student loan is in default. In other words, getting a loan to go to college, to get a good job, is not going to work like you planned if your student loan goes into default because this may prevent you from getting a good job.

Even going bankrupt does not get rid of student loans. Because student loans are federally-guaranteed and some of them get subsidies from the U.S. government, there is no way out of paying them back. Forgiving student loans only happens under extreme circumstances such as a permanent total disability or through special programs, like working for a non-profit organization for more than ten years.

Is There any Help?

There are things a person can do to prevent a student loan from going into default. There are forbearance and deferment options to explore before a student loan default occurs. These are temporary pauses of the need to make a repayment on student loans that give a person more time to begin repayment.

Loan Consolidation and Refinancing

You may be able to save money and reduce your monthly payments by going through a loan consolidation process or refinancing your student loans. Consolidation means that more than one loan combines to create just one remaining loan. Refinancing is a good idea if your loan interest rate is higher than the rates currently offered.

Consolidation and refinancing are usually worth exploring if you plan to pay your loan back, especially if they are higher interest rates loans from a private-lending source. The goals of this process are to reduce the total amount of interest expense that you will pay over the life of the loan and/or perhaps also reduce the monthly payments.

You can find various types of loans online, so make sure you check out the list below and put in your information to see whether you meet qualifications of any lender.

Income-Driven Repayment Plans

There are various income-driven repayment (IDR) plans. To benefit from some IDR plans, you may have to consolidate your student loans, if you have more than one loan. You may have to use a federal loan service provider for the consolidated loan to qualify for special forgiveness programs. These plans re-calculate your monthly student loan payments, based on a percentage of your disposable monthly income. If you are not earning a certain amount, your monthly payments may be zero. Do not let a loan go into default because of low income. Instead, apply for one of these IDR plans and then, if you qualify for making no payments, it still shows that you are making a qualified attempt to pay. It is as if you are paying each month on time even if the payment is zero.

Understand that this causes the interest amount due on the total loan to go up and that additional interest accumulates to add to the total that you owe. Nevertheless, this is a better choice than having to deal with the severe negative consequences of a defaulted student loan.

Some students choose to ignore their obligations to repay student loans. And do not even bother to take advantage of the forbearance, deferment, or income-based repayment plans. This is just stupid. These problems are like festering sores that just get worse if you ignore them. Be smarter than that.

Conclusion

When you examine the figures from our analysis of the student loan statistical overview, then, is it easy to see how students are a bit overwhelmed. If you or your children are entering college for the first time, it is a good idea to understand the student loan statistical overview. And to compare it with your own circumstances before you agree to take on student loan debt.

It is much better to be proactive and take advantage of the various option, which does exist, to make dealing with the burden of student loans more manageable. If you are already in default, get some low-cost student loan counseling from a qualified non-profit organization that does not charge much for their services and read all the information on studentaid.gov under the manage loans section to understand what you can do to manage your student loans.

The Ultimate Study Guide to Student Credit Cards

Being a college student these days is hard. I am sure it has always had its share of challenges, but I would agree that it is much harder than it used to be. The cost of college has risen exponentially and parents can no longer afford it. That means students must try to get scholarships and grants. Students must take out loans and get jobs to pay for the rest. It is not just tuition, room and board anymore. There are books, computers, equipment and additional fees that need to be paid. Many college students are leaving school with the burden of heavy debt that takes them an incredibly long time to repay. Most college students have a job of some sort which means they get little sleep. They also have access to student credit cards, which as we all know are a blessing and a curse.

What Is A Credit Card?

Technically, a credit card is a rectangular piece of plastic that you use in place of cash to make purchases. In a store, you need the actual card, but when shopping online all you need is the credit card number. When you use the credit card, you are agreeing to pay back the money with potential interest and fees.

The credit card company, which is typically a bank, is basically giving you a line of credit. This means they are agreeing to allow you to borrow up to a certain amount of money. You can use that line of credit incrementally, or all at once. However much of the line of credit you use is due within 30 days.

To make it easier to understand, I will explain with numbers. Please keep in mind, these are not real numbers. I am making them up only to help you understand the concept.

A credit card company gives you a limit of $2,000. That means you can use that $2,000 in any way and any time that you wish. However, in about 30 days, they want you to repay the money you use. If you do not pay it all, you must pay interest charges. Those charges differ depending on the bank and your credit. For purposes of this explanation, I am going to say your interest is 20 percent. There is a minimum that the credit card company wants you to pay each month.

You have $2,000 available. You spend $300. That means you now have $1,700 available. When the bill is due, you pay all $300. You now have $2,000 available until the next time you use the credit card.

However, let us say that you spend $1,000 and you cannot pay the full amount. You have spent $1,000, so you only have $1,000 available. Since you cannot pay the full amount, the credit card expects at least a minimum payment from you. They have told you that the minimum payment is $100. You pay $500. That means your available credit is now $1,500. But, you have satisfied your minimum payment, but have no paid the full balance. That means you have interest applied to the other $500 that you did not pay. At 20 percent interest, that is $100. That is added to your balance due, which just went from $500 to $600 and your available credit amount goes down from $1,500 to $1,400.

These same basic concepts apply to student credit cards, except they are meant to draw the attention of students and often have a lower available balance.

What Is Revolving Credit?

I have given information about credit cards and how they work. That available credit that I mentioned in the section above is called revolving credit. I want to take a moment to explain what that means. It is a key piece of information for you when it comes to debt and credit scores. Revolving credit, credit cards in particular, tend to have a high interest rate. Much higher than you find with an installment loan. I will share more about installment loans a little later. The interest rate on a credit card is anywhere between 9 percent and 25 percent.

Revolving credit gives you a great amount of flexibility, which is one of the best things about it. It works really well if you are able to pay off your credit card balance each month. You should know that every time you make a purchase with your credit card or carry a balance, it may impact your credit score. When using revolving credit, you should use it wisely. Even student credit cards have revolving credit and it is a good way to create smart habits.

You should be sure to keep your credit card balances as low as you can. While you can use all of the credit extended to you, that does not mean that you should. When you use all of the credit extended to you, it will lower your credit score. I will explain more about credit and credit scores a little later, so stick with me and keep reading. Your goal should be to use less than 30 percent of the credit given to you. I know that can be challenging at times. When you find yourself over 30 percent, pay down as much of it as you can.

Even if you cannot pay the full amount, make sure you pay at least the minimum payment. If you do not pay the minimum payment, you will incur fees. Often, the credit card company increases your percentage rate and it impacts your credit score. Make sure you do not open too many credit card accounts at one time. This could cause your credit score to decrease. You can also be denied simply because you have applied for too many cards in too short a time.

What Is Credit?

I want to talk about credit for a moment. It is important that you understand this concept of credit. If you do not understand what it is, you probably will not be able to build a positive credit history. Your credit history is a listing of all of the money you have borrowed and from where over the past 7 to 10 years. Bet you are thinking, “I have not borrowed any money” or “I am not old enough to have credit history”. Those are real problems and concerns for college students. This is precisely why there are items such as student credit cards.

Your credit report is what lists all of that credit history. It is actually a detailed listing of more than just any money you have borrowed. It lists addresses that you have used, as well as names that you have used. There is probably way more information on your credit report than you realize. There are three credit bureaus that report information to your credit report. Those credit bureaus are TransUnion, Experian, and Equifax. Unfortunately, not all of the credit bureaus receive information from all of your creditors.

A key piece of information that appears on your credit report is your credit score. This is a three digit number that gives creditors and lenders an idea of your creditworthiness. The most common credit score is the FICO score and falls between 350 to 850. Most people have a credit score between 600 to 750. Good credit falls between 670 to 800. Anything below 570 is the danger zone of bad credit.

What If I Do Not Have Credit?

This is a typical predicament for college students, or those in their late teens and early twenties. It is a common problem, right? If you do not have a credit history, then you have a low credit score. You cannot build credit history because you cannot get credit because you have a low credit score. So what do you do?

The answer is start small. While it may seem frustrating at first, once you take small steps to build credit history, you begin to build it quickly. The other key is start small and be smart about what you do to build your credit. I am going to list some tips on how to build credit and how to take care of it.

You can get student credit cards. These are credit cards geared for students and with them in mind. The credit card companies understand that students do not have a strong credit history. As a result, they offer them cards that have low available balances to get them started towards building credit. The key is to only use small amounts of the credit at a time and pay off the credit card each month. This will help you build a positive credit history and will not get you into a place where you cannot pay off your debt.

You may have to get a secured credit card first. These types of cards are perfect for people with no credit. These cards are intended to help people build credit. A secured credit card comes from a bank and has your own money behind it. You deposit money into an account. The credit card uses money from that account. Your available limit on a secured credit card is based on the amount of money in the account. When you make payments on this credit card, it positively impacts your credit score and helps you build credit.

What Are Other Ways That I Can Build Credit?

There are some ways other than student credit cards to build credit. You can get a student loan. These loans are available to students and lenders understand that these students do not usually have credit. They are a great way to begin to build credit by making monthly payments. Whatever types of credit you do get, make sure you pay the bills on time. One of the top reasons for poor credit it late or missed payments. It is important to pay all of your bills on time. While bills such as insurance, utilities, and even cell phone do not report to the credit bureaus every time you make a payment, they do report if you do not make a payment.

This gets tricky because paying them timely does not help your credit. However, not paying them absolutely hurts your credit. You can request a third party report these payments to the credit bureaus, but they do charge you to do that. This may be something that you want to consider if you are looking for ways to build up positive credit. You can purchase a car as a way to build credit. This is often something that a recent college graduate does. If you cannot get a loan on your own, you can have a co signer on the loan.

This is helpful when you have little or bad credit. You should make sure this person has a good credit history. When you pay your monthly payments, it helps you build your credit history. You should keep in mind that if you do not make your payments, it becomes the responsibility of the co signer to make them. If you do not pay the loan, it negatively impacts your co signer’s credit as well as yours.

Advantages Of Credit Cards

There are some advantages to having student credit cards. It truly depends on how well you use your credit card. A credit card can give you some flexibility in your spending. It can help you build credit and teach you smart habits. A credit allows you to potentially keep money in the bank and let it accrue interest while you purchase items today and pay for them within 30 days. It also allows you to make a large purchase today even though you may not have all the cash.

A credit card can also be a safe way to make purchases instead of using a debit card. If the information is stolen, it is not your money in the bank that is being used. It still stinks to have a credit card and your information stolen. When it is a credit card, you can freeze that account so no one else can access it and it is not your money that is frozen. When you pay off your credit card balance each month, it is an effective money management tool. It allows you to be in control of your money.

Disadvantages Of Credit Cards

There are also some major disadvantage to having student credit cards. The major disadvantage is the debt part. As you all know the debt in the US just continues to rise. College students rarely come out of college without any debt these days. The average cost of college is also rising which adds to the average college debt.

As I stated above, credit cards are a great tool to manage money. However, you need to remain in control of your credit cards and your money. Using credit cards is a slippery slope to finding yourself in a puddle of uncontrollable debt. You need to stay on top of your spending, your available credit card balance and the amount that you owe. If you see that the amount you owe is climbing, you need to get control of it. You cannot ignore it if the number continues to increase and you feel you are unable to pay your debt. At that point, you should stop using your credit card and make a large effort to pay the bill.

Are Student Credit Cards Different?

The only real difference with student credit cards is that they are marketed towards students. They are the same as a credit card that is not marketed to students, but they typically have a lower credit card limit. These cards are usually ones for which a student will get approved. It helps to keep students and their spending in check. It may be a challenge for students to understand how to manage their credit at first. The limits are kept low so that they do not get themselves into too much trouble.

Sometimes these cards offer special rewards and promotions to students such as rewards for good grades. Discover offers a student card that lets students earn a $20 credit on their statement if they get at least a 3.0 GPA. They are eligible for this reward for the first five years that they have the card. Sometimes, students are also eligible for an introductory rate of 0 percent interest. This special offer does not last as long as it would on a non student card, but it is a nice perk to have for a while. After that the interest rate goes up to anywhere between 14 percent and 24 percent interest.

What Are Student Loans?

Student loans are a serious consideration for all students. While both student loans and student credit cards are ways to manage money, they are very different ways. Student loans are money you borrow to pay for school that you promise to repay. The lender charges you interest as a fee for lending you the money. There are different lenders for student loans and each one has a separate set of benefits. There are different rules and limitations based on if you are a graduate or undergraduate student. Professional working students and parents may also have some different considerations when it comes to loans for them. You do not have to make any payments on most student loans until you graduate or reduce your credits to become a part time student. That is not the case for all loans, so be sure to read all the fine print.

Many student loans have a flexible plan for repayment or have easy rules to postpone repayment. You usually receive a lower interest rate on student loans and you may not need to have a credit check. Most student loans are fixed interest, which means whatever the interest rate is when you sign the paperwork is locked in and will not change. Students should always so some student loan shopping to make sure they find the best loan for their needs.


Are There Different Types of Student Loans?

When you are thinking about student loans, you often only think of loans specifically to pay for tuition, books, room and board. However, there are other expenses that students have. Many of them use student credit cards to pay their other needs, such as toiletries and vitamins and other every day expenses. Students may also have needs for equipment or even travel.

I know you might be thinking, travel what?, they are supposed to be in school learning. Stop and think for a second how hard most students work in school. Some students all they do is go to class, study, and work. They need a break, too. Even if it might be a quick weekend trip. Even if you do not agree that they need time to relax, it is nice to know that there are options such as loans for travel. A travel loan is basically a personal loan. Like a student loan, these loans happen when a lender agrees to let the student borrow the money. The student promises to repay the loan by making regular monthly payments.

Here is where it gets tricky and where personal loans differ from student loans. A personal loan must be paid back immediately. There is not deferring payment. Also, interest rates tend to be higher on personal loans than on student loans. Lenders of a personal loan also do a credit check so for this type of loan, your credit matters.

Can Student Loans Be Forgiven?

There are some strict requirements around which types of loans that can be forgiven and when. There are two major student loan forgiveness plans for student loans. These plans do not apply to student credit cards. One is for those who enter into public service jobs. This forgiveness plan only starts after you have made 120 payments, which is about 10 years of payments. You also must work for a specific employer, such as a volunteer for AmeriCorps or the Peace Corps, or some other government agencies. There are some other employers that qualify as well and you may be able to get the rest of your federal direct loan forgiven.

Teachers may also be able to get their loans forgiven. They must work for a qualifying school for a least five years. They may be able to receive from $5,000 to $17,500 in loan forgiveness. Studentloans.gov can provide you all the information that you need to determine if your loans can be forgiven. It does not hurt to take a look at the qualifications.

Should I Get A Student Loan?

This is a question that only you, and maybe your parents, can answer. You have to do what works best for your current situation. I would make that recommendation that you carefully consider taking on a loan or student credit cards. It is easy to think, I know I will get a job when I graduate and I will be able to pay back this loan. However, you might not. It is fairly easy for a full time student in college to obtain a student loan. I caution you to consider this. Just because you can, does not always mean that you should. You should use this same consideration for student credit cards.

I know when looking at the cost of college, it is easy to become overwhelmed by the price tag. We already know that the average student debt is high. Student loans and student credit cards add to that figure. Before you take on any debt, consider how much money you need. You should make sure that you have exhausted all of your options for scholarships and grants before taking on debt. There are many scholarships available, more than you realize. You should do all of your research first before you assume that taking on debt is the only answer for you. Perhaps you are able to make up the difference with a part time job. You may not be able to, but at least know that for sure before you agree to a loan.

Conclusion

As I stated at the beginning of this article, being a college student is hard today. I would not want to be in that place again. The cost of everything is rising while earnings are decreasing. There is a large appeal for student credit cards and loans. We live in a world where we want more stuff and we want it now. Before you give into the allure of what appears to be free money. Remember it is not and you must pay it all back.