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.

How to Avoid Defaulting On Student Loans: Money 101

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

Although getting a college education puts you ahead in your career, it’s also a huge expense. These days, many young American students are relying on student loans to cover their expenses as they pursue their education. This can, unfortunately, add stress over financial issues to the many other challenges of succeeding in university studies.

It has never been more important for university students to plan financial matters carefully. Defaulting on student loans or experiencing another financial setback is a bad way to start things out. Young people graduating from college need to build their credit rather than damage it.

Fortunately, there are many things students can do to avoid defaulting on student loans. As a student, you should do your research. You can get off to the right start in life financially and keep up with your student loans. Being aware of your resources and making effective plans is all it takes.

Default On a Student Loan: Learn how to Dodge This Unpleasant Status

Defaulting on student loans will damage your credit significantly. Damaged credit can make a lot of things in life harder for you. Once you finish your studies, you’ll be looking for a job. Many employers will check your credit before hiring you. Defaulting on student loans could make it more difficult to find a good job.

Poor credit also makes it more difficult to acquire housing. Landlords routinely check the credit of prospective tenants. Damaged credit could mean you have to pay more for lower quality housing. Damaged credit means you’ll pay more for any kind of loan you need. If you need a loan to purchase a vehicle, you’ll pay more in interest. You may not even be approved for a loan with enough credit damage.

All these factors make it very important to avoid defaulting on student loans.

Clearly, you need to do everything you can to avoid a student loan default. Use any tip or tactic available to you that helps keep up with payments. Be specific when thinking about how you’re going to manage my student loan. Again, planning is essential.

Below are four tips to use to make sure your student loan stays in good standing.

Be Organized

The Simple organization can help you to avoid defaulting on student loans. It’s easy to overlook payments or even default when you’re not staying on top of finances. Organize by calculating your budget each month. Track your spending. Work to build up savings. Also, set reminders for yourself of not only your student loan payment but all your financial responsibilities.

Use Available Resources

To avoid defaulting on student loans, use your resources. There are many resources out there helping students to manage their finances. Resources could be available from your university or your bank. They could include financial counseling services. They also could include budgeting apps. Always be on the lookout for programs you can take advantage of. In particular, consider programs like scholarships you could be eligible for. These programs could help foot the bill regarding your education.

Be Frugal While Studying and Afterward

A lot of young people get into the bad habit of overspending during college. Just because you have loan funds available to you doesn’t mean you should spend them. Try to save as much of your leftover loan funds as possible. Be frugal by avoiding eating out and spending money on luxuries like expensive clothing as a college student.

The best tactic is to be patient about spending money. Once you’ve landed a great job, you’ll have the money to enjoy yourself. For the moment, your priority is not defaulting on student loans.

Focus on Generating Income

The more money you make, the less likely you’ll be defaulting on student loans. You need to take advantage of income-generating opportunities. Once you start looking for a job after graduating, it’s good to take some small income-generating job until you land your dream job.

It could take months to land a job in your field. Try to avoid going without any paycheck coming in whatsoever. Once you graduate or leave school, you’ll be expected to start repaying your loans quickly. Don’t waste any time in earning money.

Types of Student Loans

Questions Before you get a student loanBeing familiar with different loans helps you to choose the right type to borrow. There are numerous loan types available. Some loans are more affordable regarding interest costs than others. One of the number one things you should learn while researching and planning are what types of student loans there are.

The following are two of the main student loan types available:

Federal Loans

By far, federal loans are the most commonly used student loans. These loans are ideal because they don’t typically require a credit check. Most college students don’t yet have extensive credit histories. This means that federal loans are often all that’s available to them. There are numerous types of federal loans including direct subsidized loans, direct unsubsidized loans, and Direct PLUS loans.

Direct subsidized loans are the best available option. These loans don’t require any payments until the student leaves school. They also don’t accrue interest that the borrower needs to pay until the student leaves school. The government pays any interest that accumulates before the student graduates.

Direct PLUS loans are a type of federal loan that is only available to students of graduate and professional schools. These loans do require credit inquiries.

Private Loans

Private loans come from private financial institutions. They could be provided by banks or credit unions. In some cases, private loans are also available from state agencies.

Private loans to be used for tuition and university costs are much like other private loans. They require credit checks on applicants. However, students can often be approved with the help of a cosigner. Interest rates can vary widely regarding these loans. Private loans should only be used by students if there are no other options.

Building Credit

One of the biggest reasons to avoid defaulting on student loans is to build credit. If you borrow a student loan and pay it off on time, it will benefit your credit significantly. Students often need credit-building opportunities. They often don’t have established credit histories.

While having a student loan creates an expense, it also creates an opportunity. These loans create opportunities to build credit. Strong credit is a huge asset in life. Therefore, students should focus on building credit and exploit opportunities they have to do so. Those with no credit history often struggle to build credit because they can’t get approved. However, federal student loans create an opportunity for loan approval regardless of credit history.

Unfortunate Consequences of Repayment Problems

Paying off student loans on top has positive credit effects. Failing to do so can be detrimental to a student’s credit. Defaulting on student loans isn’t the only student loan issue negatively impacting credit. The following are two other student loan issues that damage credit:

Late Payments

Any time you make a late payment on your student loan, it negatively impacts your credit. This is why it’s essential to make your loan repayment a priority. Leave yourself reminders so that you don’t make payments even a day late. Consider setting alarms on your phone so you remember when your loan payment day is each month. Don’t underestimate the damage one late payment can do.

One of the best ways to be sure you won’t make late payments is to schedule automatic payments. Automatic payments automatically come out of your account when they’re due. This is a great way to prevent late payments. Some private lenders might even give you a discount if you schedule automatic payments.

Defaulting

Of course, the most severe credit consequences come when you default. Defaulting on student loans can set you back years when it comes to building credit. It will take you a long time to repair the damage done by default.

As part of your student loan planner, it’s a good idea to put thought into ways to avoid default. This means you should brainstorm solutions for making your payment when you’re struggling financially. Possible options could include borrowing from a friend or selling a valuable asset.

Debt Consolidation

You may have numerous loans you took out for student expenses. If so, you might want to consider consolidation. When you consolidate, you turn several payments into one. This is great for organizing your debt.

Debt consolidation makes it easier to avoid missing payments. It’s complicated to remember numerous payments on different days of the month. Complete debt consolidation means one easy payment each month.

However, be careful when you consolidate. Make sure you don’t consolidate unless you get an interest rate that’s as low or lower than previous interest rates.

Minimizing Student Loan Costs

Of course, you’re less likely to experience defaulting on student loans if you owe less money. Anything you can do to minimize student loan debt can prevent defaults. You can control the amount you spend on your debt. There are numerous things you can do to owe less once you leave school. Here are some helpful tactics for minimizing student loan costs:

Going to a Less Expensive School

If you’re concerned about the debt before beginning college, consider applying to less expensive schools. The less your tuition costs, the less you’ll have to borrow. Explore your options. Public schools cost much less than private schools. You can also consider taking some courses at a community college to really bring costs down.

Avoiding Capitalized Interest

A loan with capitalized interest is a loan that accrues interest even before repayment starts. Then, the accrued interest is capitalized onto the loan. You will then be charged interest on both the balance and the capitalized interest portion of the loan.

Capitalized interest increases the costs of a loan significantly. When evaluating student loans, look for loans that won’t accrue interest until you graduate. Usually, federal student loans won’t capitalize on interest until the student graduates. If your only choice is to take out a loan that accrues interest beforehand, try to pay the interest off as it accrues if possible. This will minimize the amount of interest you pay.

Keeping up With FAFSA Changes

How accurately you fill out your FAFSA could influence the total costs of borrowing. This makes it important to be aware of FAFSA changes. The FAFSA is frequently updated so that it’s not exactly the same from year to year.

Changes frequently come out regarding the FAFSA deadline. Missing the FAFSA deadline could create a huge problem. Also, students should know that they need to enter income information every year. Students need to carefully follow instructions on the FAFSA website to stay updated on FAFSA procedures.

Taking Advantage of Tax Deductions

When it comes to saving money regarding student loans, tax deductions are important. Those paying off student loans can use loan payments as tax deductions. This helps minimize their tax liability. However, only interest payments can be deducted. Also, only amounts up to $2,500 can be deducted. Interest paid on both federal and private loans can be deducted.

Refinancing for Lower Rates

As your credit improves, your ability to get a better interest rate on debt improves. You can potentially refinance your student loans to save money on interest costs. When you refinance, you borrow money again at a better interest rate. You use the money to pay off your previous debt. Then, you start repaying the new loan. Refinancing can not only reduce interest but also bring down your monthly payment. This can make it easier to budget for your student loan payment. This then reduces your chances of defaulting on student loans.

Taking Advantage of Loan Forgiveness Options

If you’re struggling to keep up with your loan repayment, loan forgiveness option could be your choice. There are some loan forgiveness programs available that you may qualify for. Loan forgiveness programs could take away all or part of your remaining student loan debt.

However, it’s important to realize that these programs aren’t usually available right away. You need to pay on your loan for some time before you are eligible for student loan forgiveness. You may be eligible for these programs based on your job. Two loan forgiveness options are public service loan forgiveness and teacher loan forgiveness. There are also additional loan forgiveness programs in existence for those looking in other fields like health care and law.

You can learn more about loan forgiveness programs at studentloans.gov. If you visit this site, you can learn more about your student loan debt and your chances of qualifying for loan forgiveness.

Public Service Loan Forgiveness (PSLF)

You may be eligible for this loan forgiveness program if you are working in public service. This PSLF program could potentially get rid of all of your remaining student loan debt. However, you cannot qualify until you have to pay off your loans for 10 years.

Teacher Loan Forgiveness

Teachers could qualify for the teacher loan forgiveness program. However, teachers have to work for a school that qualifies for the program. They also need to have been working in the job for at least five years.

If you qualify for this program as a teacher, you could be granted as much as $17,500 in loan forgiveness.

In Conclusion

You now have a great deal of information available to avoid defaulting on student loans. Start planning carefully today. Once you get behind on payments, it can be difficult to catch up again. Be vigilant and work hard and you can stay ahead regarding your loan payments.

It takes an effort to establish strong financial health. Although accomplishing a university degree is a challenge intellectually and financially, it’s completely doable. It just takes focus and continued vigilance. Avoid the temptations to spend money. Also, be constantly aware of your debt load as you proceed in your studies. That debt isn’t going anywhere until you pay it off. Make avoiding defaulting on student loans your priority.

Once you’ve paid off your student loans, you’ll benefit from a strong positive mark on your credit report. This will make life easier for you whether you’re looking for a new job or a place to live. It will also relieve your stress and provide you with financial resources to take advantage of opportunities. Be sure you won’t be defaulting on student loans by putting this essential information to good use.

Loan Shopping

If you’re on the lookout for a loan, we have some options for you. But in order to find the best lenders and best deals for you, we need a bit more information.

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 Collegedata, the average cost of tuition in 2018 was around $34,000 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.

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Everything You Need to Know About Traditional Student loan Versus an Income Share

Next couple of section will be dedicated to explaining both of these options in detail. Not only should you know what they are, but you should definitely look into the pros and cons of each. Without being informed, you cannot make the best decision for yourself. So let’s find a way for you to get that education!

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?

Резултат слика за types of student loans infographic

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.

You should always be aware of all your options. Educate yourself on the positive and negatives of all loans that are available to you. Depending on your distinct circumstances and what loans you find, different options might be the right one for you.

What is An Income Share Agreement?

In our quest to give you all the information about traditional student loan versus an income share, we want to give you all the information. Income share agreements may be something about which you know little. My goal is to educate you so that you gain enough knowledge to either do more research or feel comfortable that you can make a sound decision. 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?

Резултат слика за student loan infographic

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.

Are There Benefits To An Income Share Agreement?

In all this talk about traditional student loan versus an income share, I am not convinced you know enough about income share agreements. 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?

I should probably be a little more clear about what it means to not find a job after college. Most likely, you are not going to receive your credentials in your hand and your dream job starts blowing up your phone. That most likely will not happen. You may have potential employers attempting to hire you. You may not be interested in those jobs for various reasons. While I am a huge advocate of working at a career that fulfills you, sometimes, you have to take what you can get. That does not mean you stop looking for your dream job or become complacent. It simply means, you are able to pay the bills while looking.

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.

What is the Impact of a Student Loan on Your Credit Score?

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.