While the college price tag might seem shocking, completing your studies is likely one of the best investments to make. However, being smart with debt will be key. If you’ve attended any info session at a college visit, you may have heard many confusing and detailed terms about financial aid. Here are three tips to navigating student loans.
#1: Understand your options.
- Unsubsidized: government loan, interest accrues while you’re in school
- Subsidized: government loan, interest starts accruing after graduation (or after you leave school)
- Parent Plus: loan parents can take out from the Department of Education
- Private: loan from a chosen provider, often carrying higher interest rates
If borrowing loans for college, two of the most cost-effective options are from the government: unsubsidized and subsidized loans. Students are awarded a certain amount of either of these based on their FAFSA results.
Any unsubsidized loans you take out will accrue interest while you’re a student, but that doesn’t mean unsubsidized loans are a bad option. The interest rate on an unsubsidized loan is still likely to be less than a private loan.
Subsidized loans on the other hand, don’t accrue interest while you’re in school—or at least not interest you will ever see. The government pays the interest that subsidized loans accrue while you are enrolled as a student and for up to six months after. This makes them an appealing option.
#2: Start paying during school.
Interest rates are what a provider charges the borrower in exchange for a loan. On the typical loan, interest will start being added to your total loan amount immediately.
Although most student loans won’t require payments while you’re in school, the interest will keep increasing the loan amount. Each month, interest is added to the loan. When you don’t pay off the interest payments, they will just add to the sum and generate even more interest
How can you minimize the effects of interest?
Start paying what you can while in school. For instance, if you make payments to cover the interest that is added to your loan total each period before you actually have to start making payments, your loan total will be less when you graduate.
#3: Borrow strategically.
Make sure to take into account how much money you need for school and how much money you will likely earn at your first job after college. Checking the projected salaries for your expected future job might help you plan how you can repay your loan after college.
In addition to borrowing strategically, check out your school’s other financial aid options. Apply for every scholarship, get a job (on-campus jobs are especially convenient), or try to find a paid-internship. Loans help many students who wouldn’t be able to complete their education without them. But the fewer loans you take out, the less you’ll end up paying for your education in the long run!