How to Avoid Defaulting On Student Loans: Money 101

Man counting college savings fund, tuition fee or student loan with calculator

Debt is one of those ugly four-letter words that no one wants to deal with. And yet, millions of Americans seem to survive on debt. One of the most common forms is, of course, student debt. How many people could really afford a college education out-of-pocket?

The answer is very few. And that is why so many people are in massive amounts of student loan debt – wondering how to keep from defaulting on student loans. This guide is designed to help answer that question.

What Happens When Defaulting On Student Loans

Defaulting on student loans does more than add the stress of knowing you’re in debt. There are actually some pretty serious consequences. One of these is losing access to some programs that help, such as income-driven repayment plans and even loan forgiveness. While some loan service providers will work with you to get back on track, getting off track in the first place is risky, as you might not get the help you need.

Another potential problem is the actual collection methods. First and foremost, you have to understand that your interest is constantly accruing. And when you’re in default, collection fees are added that can be as high as 25 percent of both the loan principal and the interest.

These fees added to your loan balance can lead to some hefty payments. And if you can’t make them, you risk having your wages, income tax returns, and more garnished. I know someone who dealt with this, and she had an incredibly hard time paying her regular bills for years due to these garnishments.

And, of course, you have to remember that your student loans are reported to the credit bureaus. If you’re not paying and you go into default, it can impact your ability to get a loan for a home, vehicle, or just to get some breathing room to pay your bills. If you do manage to get a loan, you’re likely going to pay high interest rates.

If you don’t pay your student loans or work with your loan service provider, you go into default. If you go into default, any money coming your way can be garnished. If you have to get another loan, you pay out more in interest than you normally would. Bottom line: going into default on your student loans can cost you more than the payment itself.

So it is vital that you don’t default. I know that this can be easier said than done, which is why the following section will walk you through how to make sure you don’t.

How to Avoid Defaulting On Your Loans

Again, this is where we’ll talk about ways for you to stay out of default from the beginning to the end of your loan term. However, there are also some tips below to help you get out of default if you’re already there or on the brink.

Start Before You Sign the Line

The best way to avoid defaulting on your loans is to start before you ever even sign your loan paperwork. Take a good look at that paperwork and gather all of the necessary information, such as the interest rate, when your loan is due, what exactly happens if you miss a payment, and so on.

Next, take some time to think about other options. This can, of course, include other loan options. Gather information on several different loans and compare the terms.

Also, consider other ways to pay for your education. Grants and scholarships are available for people of all ages, occupations, genders, races, and more. If you do the research, you’re bound to find one or more that you can take advantage of. Every dollar you can get for free to help pay for your education is a dollar you don’t have to repay. So, whether it’s a $200 grant or a $10,000 scholarship, it’s worth the effort to apply.

Don’t forget that you can also pay cash for your education – and you don’t have to do it all at once. You can pay for a few credits at a time if you need to. This path might take a little longer to complete your program, but you won’t be graduating with debt, so it’s definitely worth considering.

If you like the idea of paying cash but don’t want to wait forever to graduate, take a look at other schools and compare the costs. Look into online programs or determine if a certificate program would be enough for your career goals. And you can split the cost of your program by paying cash for one or two classes a semester and getting loans for the others. Anything you can pay in cash means less debt when you graduate.

Take the Least Amount

If you’ve decided to go with loans, that’s okay. There’s still a way to save. When you apply for loans, they’ll typically offer you the maximum amount you qualify for. What most people don’t realize, however, is that they don’t always need that much for their schooling.

Instead, they’ll often get quite a bit back as a stipend. Some people use it to pay for a laptop or internet service. Some spend it on things they want. In either case, it’s money you don’t necessarily need. So, when you agree to a loan, ask for the minimum amount you need. This alone will make a big difference to the amount you owe at the end of your degree program.

Know Your Agreement

Your next step after taking out loans is to know the terms of your agreement – front, back, and sideways. Read over your paperwork several times until you understand fully what is expected of you, when you need to make your payments, how you need to set those payments up or make them manually, and so on. And be sure you understand exactly when and how interest accrues as well as what actions the loan provider will take if you miss a payment.

Understand, also, that most loans don’t come due until after you’ve graduated. However, others do. You need to know now which type of loan you have.

Make a Plan and a Budget

Alright, you know the terms of your agreement. Now, it’s time to make a plan to carry out that agreement. That starts by adding your payments to your budget. If you happen not to have a budget yet, it’s time to start one. Take advantage of the Budgetry store in the Goalry Mall to help you create and implement a budget that will keep you on track.

After adding your payments to your budget, you need to make sure you have the funds to cover them. Do some calculations to determine if there’s already enough money in your income to make those payments. If not, you’ll need to find a way to squeeze them in. This might be through cutting down on your coffee shop runs, picking up extra shifts at work, or being more careful with your grocery shopping. In either case, it’s time to determine where exactly your loan payments are going to come from, and commit to putting that money towards your loans.

Keep Up Online

Most loan service providers allow you online access to everything pertaining to your loans. Take advantage of this, as it can help you keep up with payments, access repayment options, and much more.

Defaulting on Student Loans – What to do?

While the steps above can definitely help prevent defaulting, we all know that things can go wrong. Sickness can keep you out of work. Your vehicle might decide it’s time to break down. In any event, stuff happens. Life throws curveballs, and it can throw you off track. So how do you keep from defaulting in those cases? The following tips can help.

Determine the Problem

First of all, you have to figure out what the problem actually is. Is it that your loan payments are due at the same time of the month that everything else is due? Do you just not bring in enough to cover the payments? Are there more unexpected expenses popping up than ever before and you simply don’t have enough savings to cover them?

Whatever the reason you’re having trouble making your payments, write it down. In some cases, you might be able to fix the problem simply by revisiting your budget, cutting down in some other areas, or being more vigilant with things like car maintenance. However, if you’re having an ongoing struggle to pay your loan payments, the following tips can help.

Communicate with Your Loan Provider

One of the first steps to take is to communicate with your loan service provider. Believe it or not, most people are willing to help you as much as they can. And collection methods cost money, so they’d much rather find a way to work with you than have to pay to collect their money. Call your provider, discuss the situation, and find out what options they have to help.

Look At Repayment Plans and Other Options

When you’re having a hard time paying because you don’t have enough income, there are a few ways to address this. Consider ways to make some extra cash, like a side hustle or working a few extra hours a month. You might dig into blogging, selling printables, or other ways to make side cash without spending too much time doing so.

Another option is to look into Income-Driven Repayment options. These base your payment amount on your income and can significantly decrease your monthly payment. In fact, if your income is low enough, it might just take your payments down to zero.

Please understand, though, that this doesn’t make your loans go away. It will actually increase the length of time you owe them. So if you need an income-driven repayment plan, take advantage of it. However, while you do, try to formulate a way that you can start paying your loan payments in full so that you’re not paying for them until past retirement.

Getting Out of Default

What happens if you’ve already defaulted on your loans? Well, you’re probably overwhelmed and afraid of what’s going to happen, but take a breath. You can still get out of this with some commitment and work.

Do An Assessment

Just like handling mishaps, the first step should be understanding what went wrong. What situations caused you to default? Are the payments too high? Did you lose a job? Did you miss work due to a death in the family? Write down everything you can think of that went wrong so you can take the necessary steps to address it.

Talk to Your Loan Service Provider

This should be your next step. Depending on the reason you defaulted, there are often programs available to help. For example, some providers offer help if you’ve suffered a job loss, medical issue, or loss of a loved one. However, you might not find out about any of these programs until you communicate with them.

There are also options like loan consolidation and loan rehabilitation. Loan consolidation means that you pay off all or a portion of your student loans by taking out a new loan. This can be helpful for some people, especially if they are able to get lower interest rates or more favorable terms.

Loan rehabilitation is a program through which your loan service provider agrees to accept “reasonable” payments for a set period of time, and then your loans come out of default status. Typically, “reasonable” payments mean they calculate 15 percent of your annual discretionary income, divide it by 12, and then accept that amount for around nine months.

After talking to your provider, you will get a better idea of what’s available to you and how it might help. Be sure to compare all the options provided so that you can make the best choice.

Look Into Other Loans

Let me start this by saying that this is not the best choice for everyone because you’ll not always find a loan that matches your needs. However, it is a good option to consider and look into. All you need to do is determine what – if any – personal loans you might get approved for. Compare their terms and interest rates with those of your student loans. If the terms and interest rates are better, consider applying for those loans and pay off your student debt.

Conclusion

Defaulting on student loans can lead to many problems, but it can be challenging to prevent it from happening. Remember the old saying, “Where there’s a will, there’s a way.” This saying is true, but it can take some time and dedication to find that way. Still, take heart. Remember, you’re not the only one fighting this battle, and even in the toughest times, it’s a battle you can win.

Loanry

How to Consolidate Student Loans

Mini graduation cap on dollar bills.

You entered college with the knowledge that earning a four-year college degree would make you vastly more employable. It took long study hours, paper after paper, week-long study sessions before finals, and tens of thousands of dollars. Scholarships probably did not cover all of it so you likely have some college loans.

How to Consolidate Student Loans

In the US, consumers owe more than $1.64 trillion in student loan debt. Even credit card debt measures less – more than half a billion dollars less. About 45 million individuals took out student loans. Nationally, the average college debt equals $29,900. Parents owe money, too. About 14 percent of student’s parents also took out loans with an average PLUS loan debt of $37,200. Sallie Mae tries to recoup its money as quickly as possible so the typical monthly payment ranges between $200 to $299.

Right out of school, you might not make the salary you had envisioned. You could probably make due except six months after you graduate, you owe your first payment on your student loans. Sallie Mae wants its money. Many graduates struggle to re-pay their student loans. You may submit deferment after deferment requests, but the best option remains finding a way to repay.

You do have options. Deferment can help for a short time. Consolidation and refinancing also provide options.

Learning How to Consolidate Student Loans

Before we jump into consolidation, let’s talk about what happens when you apply for a deferment.

Deferment Option


This makes a good option if you just need a few months before you can comfortably begin repayment. A deferment lasts for six months. You can request them more than once. That means if something unforeseen occurs and you cannot start your new job on time, you can also push back the date by which your payments begin. You can download a deferment form from the Sallie Mae website or you can file an online deferment form.

Sometimes, Sallie Mae arbitrarily mails a blank form to you. You need to file it as quickly as possible. Shoot for at least two weeks before your payment due date. Even if you have a deferment pending, you must make your student loan payment.

You must stay on top of your paperwork. You could file for a deferment and think everything has been taken care of, but the deferment could get denied or the agency could determine the form was completed incorrectly. This could put you into default. You can quickly get out of default status by negotiating with Sallie Mae. Go past the customer service representative by asking for a manager or write them a letter that explains the situation. As for a small, good faith payment you can pay to get the loan out of default status. Next, request a hardship payment plan. This lets the agency know that you do want to pay your debt and you take it seriously.

But, let’s look at ways you can avoid needing a string of deferments and how to can completely avoid defaulting.

Consolidating Your Student Loans to Better Manage Finances

Perhaps you’re already familiar with the concept of consolidation of credit cards or loans. If not, essentially, rather than making many smaller payments on a bunch of loans, all of them get bundled together with a uniform interest rate allowing you to make one payment per month. The organization to which you make the payment then distributes it among the various loans.

This can make it simpler to protect your credit and make the payment on time each month. It can also make it cost less each month although the re-payment time period may lengthen.

When you consolidate student loans, you can bundle all of the loan types. Your federal, state, and private loans can all go into the consolidation loan.

Two Types of Consolidation

When learning how to consolidate student loans, your first major decision is how to consolidate. Two main ways exist. You can consolidate with an organization like the Department of Education (DOE) or you can take out a larger loan that lets you pay off all of the student loans and only owe one payment per month.

Consolidation Programs

You can use the Department of Education (DOE) to consolidate or a private bank if you need to include private loans. This type of loan consolidation works similarly to consolidating credit cards through a non-profit. You would pay the DOE a single payment each month which it would distribute amongst the loans.

A private bank would consolidate your loans by purchasing them. Each month, you would make a single payment to the bank to cover the total debt.

Under both of these scenarios, you obtain one interest rate and one monthly payment. This can result in a lower interest rate for you which can save you money. Depending on the term of the loan, you might create much smaller loan payments for yourself. If you obtain a mortgage-like term of 30 to 40 years, you could end up with tiny payments that result in you having more money in your budget for other things like savings and investment. That helps you because investments can grow at a higher rate than the interest you incur on the consolidated student loan. That means you could save up a lump sum to make a balloon payment and get out from under the student loan debt completely.

Consolidation Loans

You can obtain a consolidation loan for any type of loan or debt. It does not apply only to student loans. Using this method, you can pay off both the private loans and the federal and state loans through the government. You do need to qualify for a potentially sizable loan though. This might not present that large of a problem if you already landed a career-level job within the field in which you earned a degree.

Depending on your credit score, you could land a decently low-interest rate. One step in how to consolidate student loans is learning your credit score and potentially raising it before attempting to obtain a consolidation loan. If you just graduated and obtained career-level employment, you should have decent credit so long as you did not jump on the credit card bandwagon during your undergraduate. You need a minimum of 640 to earn a decent interest rate that can compete with the rates your federal loans probably offered.

Once you know you have a strong credit score, you need to study your student loan debt portfolio. You must know exactly what you owe under which program and to what lender as well as your monthly payment to each. Your portfolio might include any or all of the following loan types:

  • Direct Subsidized Stafford Loans
  • Direct Unsubsidized Stafford Loans
  • PLUS loans from the Federal Family Education Loan (FFEL) Program
  • Direct PLUS Loans
  • Supplemental Loans for Students
  • Federal Perkins Loans
  • Federal Nursing Loans
  • Health Education Assistance Loans
  • Private loans

Get Access to All of Your Federal Financial Aid Records

You can look up all of your federal loans in the National Student Loan Data System online. You can access all of your federal financial aid records there.  To determine your total student loan debt before moving forward, you need to use this type of student loan planner.

You will need to look up your paperwork on each private loan by checking your own paperwork or checking with each lender. Chances are that since they want their money, they probably mail you regularly about your payments. This makes it easy to add them to the list and have their contact information at the ready.

How to Consolidate Student Loans: Honestly Assess Your Situation

Do you already have employment that would allow you to re-pay a large loan? If you consolidate through the DOE, can you make their schedule of payments? Here is where the research comes into play. You need to contact each potential consolidation option and ask a few questions.

  • What would the payment schedule be?
  • What would the estimated monthly payment be using each option?
  • Is there a payment forgiveness option for at least one payment?
  • What happens if your situation changes, i.e. your hours get reduced, you lose your job, a medical problem arises, etc.
  • What is the penalty for late payment?
  • Once you consolidate with the DOE or a private lender, you cannot unconsolidate. The only option would be to pay them off completely with a consolidation loan. You then pay the consolidation loan off. What is done cannot be undone. Realize that when you sign the paperwork.

Is Consolidating Right for You?

You should consolidate your loans if your federal loans already entered default status. Doing so can help you save your credit rating. Other scenarios also mean you should consider consolidation.

If you know that you cannot really afford the payments you make each month, and you fear you will make late payments or default, you should consolidate.

You can also consolidate to make bill payments easier. Instead of multiple payments each month, you can make one. This makes scheduling payments simpler. You might end up with two payments if you have both federal and private loans. Besides the no going back to unconsolidated loans caveat, you also need to understand that when you consolidate private loans, you could owe a fee of up to 18.5 percent. That adds to your loan principal plus although you will likely have more years to pay things off, you will also pay more in interest that way. The federal interest rate cap of 8.25 percent remains much lower than credit card rates, but it adds up when you pay off a loan of about $30,000. You will have all new loan terms and conditions regardless of the type of consolidation.

Final Thoughts

Visit the website StudentLoans.gov. Complete the application. Carefully review the summary sheet you obtain once you complete the application. If it all looks correct, life is good. But, if you see a mistake, within 15 days, contact the DOE to correct the information.

If the application gets approved while you were in default, you will choose one of three payment plans and re-enter re-payment. Each option, IBR, Pay-As-You-Earn, and ICR, provides income-based payments. People with no loans in default get to choose from six repayment plans – standard, graduated, extended, income-Based, Pay-As-You-Earn, and income-contingent repayment. This is based on discretionary income and will not exceed 20 percent of what you have available monthly.

You start making your payments again. Voila. You eventually pay off your student loans and get a badge for adulting.

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Traditional Student Loan Versus An Income Share Agreement

College is expensive. I am sure you are thinking ‘yeah, no kidding’. There is not a student (or parent of a student) out there thinking about college that is not also thinking about how to pay for it. According to Educationdata, the average cost of tuition in 2022 was around $35,807 for private institutions and close to $10,000 for in-state residents at public schools. Fortunately, students can find help to pay for college in the way of student loans. There is another tool available that many may not know about and that is income share agreements. Continue reading to find out more about traditional student loan versus an income share and how each option may be beneficial to you.

What Is A Student Loan?

When considering a traditional student loan versus an income share, it is important to fully understand the difference between the two. A student loan is money you borrow to pay for school that you promise to repay with interest. Loans can come from different sources and there are benefits to each one. The amount of money you can borrow depends on if you are an undergraduate or graduate student. It also depends on if you are a parent or a professional working student. You do not have to repay most student loans until you either graduate from college or become a part-time student. However, some lenders expect repayment immediately. Most loans have flexible repayment plans and are easy to finance or postpone.

Typically the interest rate on a student loan is fixed and lower than most other interest rates. Often you may not need a credit check to have a student loan approved. When making the decision about applying for loans to pay for college, weigh all of your options carefully. It may not impact you today, or while you are in school, but it will. You have to pay back the loans once you graduate and the decisions you made years earlier may come back to haunt you.

What Are The Different Types Of Student Loans?

When considering traditional student loan versus an income share, you should know the different types of student loans. The main two categories of student loans are federal student loans and private student loans. There are some differences of which you should be aware. Federal loans come from the federal government. Private loans come from a bank or any other private financial source. No matter from where the loan comes, be sure to understand all the details of the loan.

With a federal loan, you do not make payments until you graduate, leave school completely, or become a part time student. Some private student loans require payment fight away, but may have an option to defer payments. Federal loan interest rates are fixed and typically lower than any other loans. Private loans may have either a fixed or variable rate. They could be the lowest interest option, but rarely is that the case.

Often times, federal loans may have subsidies for those who meet financial requirements. In those cases, some or all of the interest on your loan is paid for you while you are in school. Private loans rarely, if ever, offer any type of subsidy. Private loans typically require a credit check and want you to have credit established or a cosigner. Most federal loans, except PLUS, do not require credit checks.

Private vs federal loans

What is An Income Share Agreement?

Income share agreements may be something about which you know little. An income share agreement is typically set up with the school in which you plan to attend but can be another institution, where you agree to pay the tuition later when you have a job. You are borrowing the money for your tuition and agreeing to pay your tuition with a percentage of your future earnings. In a sense, you are using yourself as equity.

You are saying that the education you get today provides you the opportunity to gain employment that allows you to repay the loan. The amount you can borrow depends on your major and the length of the loan. Keep in mind, the school is projecting how much money you will make if you find a job. The amount you are able to borrow may not cover your tuition needs, so you might have to get another type of loan.

Are There Benefits To Student Loans?

One might say that a major benefit to any type of student loan is you are getting money today to go to school. For some, that is enough. The plan to figure it out later. They feel that if they do not go to college, they will not be able to get a job or be stuck where they are. They would rather risk taking on debt to try to secure themselves a future. That is a definite benefit to student loans. When students consider traditional student loan versus an income share, they may only look at who is going to give them the most money all at once.

Believe it or not, the federal government often offers the best loan terms. Do not shut down that option before looking at the details. However, that does not mean you should only consider a federal loan. You need to consider all of your options. That includes scholarships, grants, and work study. There may be other ways for you to get money to go to school. You need to put all your options all the table, look at the benefits and negatives and make decisions that are in your best interest.

Pros and cons of student loans

Are There Benefits To An Income Share Agreement?

The intention of income share agreements is to provide you the money you need for school with the promise to repay the loan once you have a job. It intends to keep you from having to pay a ridiculous amount each month in student loan debt. It caps the amount you pay back per year by making it a percentage of your earnings.

If you get a raise, the percentage does not change, but the amount you repay does because you earnings increased. No matter how you slice it, you have to pay back money. If you are like most college students, your income is going to be low, much lower than you think it should be. If you are like most college students upon graduation, you will feel weighed down by the burden of your school debt.

Unfortunately, there may not be anything you can do about that, unless you manage to leave school with no debt or loans. If you come from a wealthy family, that may happen for you.

However, if you are like most college students, that is not the case and you will have debt. As I stated many times in the article, you have to do what is best for you and your particular circumstance. Any size does not fit all and what works for your bestie may not be right for you. Educate yourself on all of your options before making a decision.

What Are The Negatives To Student Loans?

When thinking about traditional student loan versus an income share, the one thing that remains true about both of them is they are a type of loan. When you borrow money, you must repay it at some point. That has to be the biggest negative to student loans…paying them back. Depending on the type of loan, you may be able to defer the repayment but there always comes a point when you need to pay it back. Really, there probably is never a good time. Unless you have found the job of your dreams making a ton of money and you have extra money to spare. It is a great dream, but unlikely to happen. For your sake, I hope it does.

A student loan could possibly hurt your credit score. We will talk in depth about that a little further down. In general, if you stay on top of your payments, it should not hurt too much. Student loans are a burden. They are a burden to you, your parents and our economy. That is the largest downside to the trillions of dollars in student loan debt.

The Downside to Income Share Agreement

I have talked quite a bit about student loans in general. When it comes to the traditional student loan versus an income share debate, there seems to be more negatives to an income share agreement. Ok, maybe that is not fair. The better way to say it is there are more positives to a federal loan than an income share agreement.

The major downsides to an income share agreement is the limit on funding you receive. Each school has a cap, which varies from school to school, on how much they loan a student. Most likely, this amount does not cover tuition for a year. That means you have to find other ways to make up the difference. Perhaps it is not a significant amount and you find a job that pays you enough. Maybe your parents can pay the difference. But, what if none of that applies to you? Then you need to get another loan. So in addition to the income share agreement, which, let’s be real, is a loan, you need to get another loan. Upon graduation, you have multiple loans you must pay. Federal loans tend to be incredibly flexible in payment amount and when you start, but income share agreements may not have that same freedom.

What Makes The Most Sense For Me?

I hope I have been successful at driving home the point that there is no right answer for everyone. The best thing looks a little different for each person. When you are deciding about traditional student loan versus an income share, keep yourself in mind. You must consider your finances today and the goals you hope to achieve in the future.

Keep in mind, you are making decisions based upon what you want in your future. You are guessing about the type of job you have and the salary that goes along with you. I know you all have dreams, but when making decisions about college loans, you have to think realistically. Otherwise, you may set yourself up for a large amount of debt that you are not able to repay.

Yes, it is true, federal loans are a little more forgiving. As surprising as that is, it is true. They work with you to create a repayment plan that works for you. They are willing to defer more often based on your circumstances. In some cases, with specific rules, they may completely forgive a portion of the loan so you do not have to repay all of it.

What If I Can’t Find A Job After College?

When talking about paying back a traditional student loan versus an income share, you should attempt to pay the payments you can. Student loan debt is an astonishing plague on recent graduates. You want to do everything you can to pay it off as soon as you can. Hopefully, you can find a job in your field and begin your career path. If you are not able to do that and you cannot pay the bills with the job you have, what do you do?

I am going to start by telling you what not to do. Do not ignore your loans. Do not ignore your debts. You either must pay them or contact the lender and set up some other type of agreement. You should never just ignore them. That is a bad idea. In as short as 90 days, your loans are delinquent and you start getting late fees. The lender most likely reports your late or missing payments to the credit bureaus. Then the phone calls begin.

In six months, you officially are in default. When this happens, your balance is due immediately. Not only that, but chances are no one can help you by deferring your payments or creating some other type of payment plan. The sad thing about this is, if you just contact the lender, you can do something. You can defer your payments until you are more stable financially. You may be able to set up a different payment plan allowing you to pay less money per month. I encourage you to take that approach if you find yourself in this position.

Can I Refinance My Student Loans?

You might be able to, depending on the type of loan you have. The amount of average college debt is astounding. The cost of higher education is to blame for this inflated debt. Americans owe roughly $1.5 trillion in student loan debt. That is just crazy.

The first thing you should know about federal loans is that you cannot refinance them. These interest rates are set by Congress and become law. Your credit score, no matter how good it is, does not change your interest rate on a federal student loan. However, you may be able to refinance your federal loan into a private loan. You should only do this if you can find a better deal than the current interest rate on your federal loan.

You should use a loan refinance calculator to determine if you can find a better rate. This is a tool where you enter your current loan information, including how much you owe and the interest rate. This tool may also ask you what you believe your credit score is currently. The calculator gives you a list of potential lenders that offer a better deal than what you currently have. Keep in mind that when you refinance a loan, it changes the terms of the loan. That means if you current loan takes you two years to repay it, refinancing it may take you four years to repay it. You must always look at all the details before agreeing to refinance your loan to ensure it is a better deal for you.

What Are The Impacts On My Credit?

When considering a traditional student loan versus an income share and the impacts to your credit score, it is important to know that they can impact your credit in the same way. As long as you pay back your loans timely, it should not impact your credit score at all. The key is to make regular payments on time for the full monthly amount. Another item of note is that when you make regular timely payments, that can positively impact your credit score. Those payments may help your credit score increase.

The key here is the same with any type of loan or bill that you have. If you pay them on time and for the full amount, it typically does not hurt your credit. When you do not make regular and timely payments, the effects are devastating. Not only does it hit your credit hard, but it adds stress to your life.

Once you credit score has been negatively impacted, it takes hard work to improve it. In addition, you may not be able to get other lines of credit for a house or car. You may not be able to get car insurance. It may interfere with your ability to rent an apartment. When you do not pay your student loans, it has far reaching implications. It impacts things that you probably have not even considered. You want to do everything you can to pay your student loans on time each month.

How Can A Budget Help Me?

It always comes back to the budget, doesn’t it? It seems that no matter the subject, having a budget is always a good idea. I know it is hard when you are not making a ton of money to even consider a budget. Truthfully, this is the best time for you to start one. There are plenty of application available to you to help you create a budget.  Right now, you (hopefully) do not have many bills. I realize you may not have much income either, but that is exactly why a budget can help you.

You write down all of your expenses and all your income. After you have listed all expenses, see if there are any that you can get rid of. Do you have a gym membership or subscriptions you are not using? Cancel them immediately. That is a quick way to clean up your budget. Are you spending money on useless things? Now is the time to stop. Before you begin to create some really bad habits or get used to a certain lifestyle, cut those items.

When you create a budget, include a percentage of your income that automatically goes to savings. Make sure it is a percentage. That way as your income increases so does the amount of money you are saving each month. Trust me when I tell you, now is the time to start. Create these healthy financial habits and you will not regret it. Yes, it may be difficult at first, but it will be worth it. Once you get used to living with less money and your savings grow, you will be so happy you did it.

Conclusion

One last point I would like to note that I have not mentioned, any student loan payments you make may be tax-deductible for you. Make sure you have a 1098 e form that shows all payments you have made so that you can claim that deductions on your taxes. I gave you a lot of information to consider about student loans. It can seem overwhelming, I know. I am sure that you do not want to make the wrong choice. Believe me, I completely understand. Making lifelong financial decisions are tough. They should be.

You do not want to make any of these decisions without thoroughly thinking through them. You want to weight the good and the bad and make a sound decision. Be sure you understand all aspects of your loan options. If you do not fully understand them, talk to a student loan planner. That person has a vast amount of knowledge to help you make the right choices. There is no shame in reaching out to someone who has more knowledge than you to get all the information you need.

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