Obtaining a college education is one of the biggest goals in many young adults’ lives. Earning a degree opens up tons of job prospects and other opportunities that would never be possible with just a high school diploma.
They also say college can be a pretty good time. From meeting new people to experiencing things for the first (and often only) time – college is a once in a lifetime experience.
Though getting a college degree is one of the best things people can do for themselves, it doesn’t come without a price. In fact, for the 2016-2017 school year, the average student will graduate with $16,929 in student loan debt. Depending on your school and financial situation this number could be a little high or very low.
So how do millions of students pay for their higher education each year?
Well, the answer isn’t so simple.
There are a variety of ways to pay for college and many tactics and strategies to save as much money as possible when doing so.
This guide will go into these different ways to pay for college – including savings accounts, financial aid, scholarships & grants, and student loans. We will also explain, in detail, the best approaches to take when dealing with these different methods of paying for college.
As always, if you are ever confused about a specific section of this guide, or if you have any questions or comments, feel free to reach out to us!
Without further ado, let’s get started.
The Cost of College
As mentioned previously, college isn’t cheap. This section will break down the different costs in an attempt to give you an estimate of how much you can expect to pay for college.
Many students and their families make the mistake of only considering tuition fees when estimating how much college will cost. Though this does make up a significant portion of the total cost of attendance, there are many other expenses to consider. The following sections will dive into these different costs.
Tuition & Fees (Video)
This is the big guy.
Tuition and the associated fees make up the majority of the cost of attending college. Tuition is mainly comprised of the credit hours you pay for, or in more simple terms, your classes. This money goes towards paying professors and any learning material they may use, building upkeep, scholarships, student organizations, and more.
Tuition for public 4-year colleges and universities is $23,890, on average, while tuition to public 2-year colleges and universities is $3,440, on average.
Tuition to private colleges and universities cost $32,410 and $9,410, on average, for 4-year and 2-year institutions, respectively.
When it comes to public colleges and universities, students who live in the state of the school typically pay much less in tuition and fees. This is mainly because schools want to attract students in their state as they are more likely to stick around and use their skills to benefit the state. Out-of-state students, on the other hand, are usually stuck with a much higher bill. If you are on a tight budget when it comes to college, consider attending an in-state public school to save on tuition & fees.
Room & Board
When you go to college, you have to stay somewhere and eat something, right? Right.
This is where room and board costs come in. Room and board is, in short, what students pay to live on campus. This includes both what you pay for housing as well as for meal plans.
Students at 4-year public schools in the United States pay $10,440 for room and board, on average, while those at private schools pay $11,890, on average.
For those who are don’t have much money to pay for college and want to save, commuting from home is always an option. If you go this route, you will not have to pay for room and board and could save tens of thousands of dollars on your education.
Books & Other Required Materials
You’ve probably heard the horror stories of people paying over $500 for a single textbook in college. When you’re taking 5 or more classes, this can add up quick.
On average, students can expect to pay between $200-$1,000 a semester for textbooks and other materials for class. This varies, of course, depending on your major and the classes you are taking.
Other materials you may have to pay for include special software (such as MATLAB for engineers), workbooks, and test booklets (such as Blue Books).
If you are looking to save on your textbooks, one idea is to ask your professor if you can use an old edition. These are usually steeply discounted at bookstores and online once a newer edition comes out. Typically, not much changes from edition to edition. Some pictures may be updated or some paragraphs might be slightly different, but usually publishers only release new editions to combat the resale market.
Another strategy is to ask people who have already taken your classes, such as upperclassmen, if they would see you sell you their textbooks at a discounted price. This is often a win-win for both parties involved because you get the required book at a fraction of the cost, while the seller will make more than he or she would by selling it back to the bookstore.
The last strategy is to rent a textbook from your school’s bookstore. Usually bookstores will allow you to rent a book for a semester as opposed to buying the whole thing. If you are taking a class that isn’t too essential for future classes, renting a textbook may be a good idea.
It is almost guaranteed that you will need a laptop during your college education. From taking notes to putting a project together to studying PowerPoints, a laptop is arguably the most important tool of your college career.
It is important to consider the cost of a laptop and other technologies – such as special calculators – when calculating the cost of college.
Be sure to check out your major’s section of the website to find out if there are any suggested computers or minimum requirements that your computer should meet. STEM majors and art/graphic design majors, in particular, may need a certain kind of laptop.
Depending on what your campus is like, and whether you are living on-campus, nearby, or at home, transportation costs may add a considerable amount of money to your cost of attendance.
Things to consider when thinking about transportation costs include traveling to college and back home (such as by car, bus, train, or plane), parking (if you have a car on campus), and getting around campus (such as the bus, Uber, or renting a bike).
Steps to Paying for College
As we talked about before, there are a variety of ways to pay for college. In this section, we rank these different ways so you know which you should use first. You shouldn’t move onto the next method until you have completely exhausted all of your options for the previous.
1) Scholarships & Grants
2) College Savings Accounts
3) Federal Student Loans
4) Private Student Loans
The following sections will look at each of these topics in-depth. First, however, we will look at the financial aid process as a whole.
Financial aid is exactly what it sounds like: monetary assistance to help cover the different costs of college. This assistance usually comes in the form of scholarship, grants, and student loans.
Every reputable college and university has a financial aid office whose main goal is to assist students in finding ways to pay for college. If you ever have an issue with anything related to paying for college, the financial aid office is the place to call.
Obtaining financial aid isn’t difficult. There is actually one main step that all students should take in order to see what financial aid options they have, and that is filling out the Free Application for Federal Student Aid, or FAFSA for short.
The FAFSA is how the Department of Education figures out how much financial assistance you need and in what form that assistance will come in.
Obtain a Federal Student Aid ID
The first step in order to file the FAFSA is to obtain a Federal Student Aid ID, or FSA ID for short. This is basically how the FAFSA will track your application and know that the person filing the FAFSA is actually you. The FSA ID serves as your online signature, in a way.
All students should get a FSA ID, and parents who still support their children need to get their own separate FSA IDs.
In order to get an FSA ID, visit the Department of Education's Federal Student Aid site here.
Gather Necessary Documents
Filling out the FAFSA is very simple and can be done completely online. It requires some basic information such as your social security number, alien registration number (if you aren’t a U.S. citizen), most recent income tax return or W-2s, a bank statement, and records of untaxed income.
Use the following checklist to make sure you have everything you need. If you are dependent on your parents, then they will need each of the following as well:
- Driver's license or other ID
- Social Security Number
- Most recent income tax return
- Most recent W-2 form
- Recent bank statement
- Records of investment (if applicable)
- Records of untaxed income (if applicable)
- FSA ID
Submitting the FAFSA & What Follows
After you have gathered the necessary documents, you are now ready to fill out the FAFSA.
Be wary of scammers who try to take advantage of naïve students and families by charging a fee to fill out the FAFSA or find financial aid opportunities. As the name suggests, the FAFSA is completely free, and you should never pay anyone to assist you with it.
After your FAFSA is reviewed, you will be given an Expected Family Contribution number, or EFC for short. The EFC is what the government thinks your family can reasonably contribute towards your education.
Based on your EFC, you will be given a financial aid package. This may include scholarships and grants from your school or the government, as well as different types of federal student loans. You can find out more about these topics in later sections. For now, let’s focus on scholarships and grants.
Scholarships & Grants
The first source of funding for your education should be scholarships and grants.
Because these are both free money!
What we mean is that you don’t have to pay back scholarships and grants. They are “gift money” that you can use without having to worry about ever paying it back – such as the case is with student loans.
There are a variety of scholarships and grants that you could receive from countless sources. Some come from the Department of Education, such as Pell Grants, while others may come from private companies. Now we will go into each of these a little further.
School Scholarships & Grants
The schools you’re accepted to may offer you scholarships and grants to entice you to go there. You may be awarded one of these scholarships for outstanding high school academic performance, athletic ability, musical talent, artistic talent, or something else.
No matter the reason, school scholarship and grant packages are important to consider when choosing a college. Don’t immediately write off more expensive schools because you don’t think you will be able to afford them. If you are offered a generous scholarship or grant, the cost of attending one of these schools may be close to, or even cheaper than, the cost of normally cheaper schools.
Grants from the Government
The government offers a few different kinds of grants to help select students pay for college. Most of these are given to students who come from low-income families that would otherwise be unable to afford college. The main grant the government offers is Pell Grants.
Students’ eligibility for Pell Grants is determined based on their EFC, or Expected Family Contribution, which comes from the FAFSA. Students must display financial need, have not earned a bachelor’s degree, be enrolled in an eligible program, and be a U.S. citizen or an eligible noncitizen.
Eligible students receive a certain amount of money for each school to use towards expenses. For the 2016-17 school year, students may receive up to $5,815 but students may receive less depending on their financial need.
Pell Grants are paid directly to the student’s account or directly to the student. Like most grants and scholarships, Pell Grants do not have to be paid back unless you withdraw from school during the time that the grant is helping pay for or if your enrollment status changes that makes you ineligible.
How to Find Private Scholarships
Many organizations offer college scholarships and grants as a way to give back to the community. From Burger King to Coca Cola to a local business down the street, there are countless private scholarships you can apply for and (hopefully) win.
Typically, these scholarships only require a simple application, and in some cases, an essay or letter of recommendation. The following sections will focus on how to find and win these private scholarships.
As discussed, there are countless scholarships out there. While there is no possible way you could apply for every single one, it isn’t too difficult to apply for many. Before you apply, though, you have to find them!
So how do you find these scholarships? Well, there are a few ways.
Scholarship Search Engines
The first and most efficient is by using a scholarship search engine. There are many out there, most of which do basically the same thing.
In most cases, after you enter in some basic information – such as your high school grade point average, intended college major, and extracurricular activities –the engine automatically finds hundreds or thousands of scholarships that you are eligible for.
You can then go through and apply to these different scholarships. Some scholarship search sites may even let you apply to many scholarships with one application! This could save you hours and is a great way to increase your chances of winning one.
Manually Searching for Unique Scholarships Online
If you have a certain passion, talent, or trait, you may be able to find some scholarships that are specifically relevant to you – increasing the likelihood that you will win them.
Think about what makes you different.
Did your parents immigrate to America? Do you have a very specific, unique target career? Do you wear glasses? Do you have red hair?
These are all things you can actually get a scholarship for, believe it or not.
We like to call these unique scholarships because they aren’t your run-of-the-mill scholarships that are awarded for academic performance or outstanding community service. These scholarships are only offered to a small niche of people and are typically much less competitive.
If you can think of something that sets you apart, simply Google (or whatever search engine you use) “(insert unique trait/skill/passion) talent”. Check out the results and see if you meet the eligibility requirements. If you do, apply!
Searching for Local Scholarships
Though there are thousands of scholarships offered by big corporations to students throughout the nation, there are also many smaller, local scholarships that you can apply for.
Some places around your hometown that may offer scholarships include local churches or religious places, small businesses, and organizations. Like the unique scholarships just mentioned, these are typically much less competitive and you have a much greater chance at winning one. Try a quick search online for your state or hometown + scholarships to see what is available!
You should know that these scholarships may require more work as compared to larger national scholarships. Aside from an application, essay, and/or letter(s) of recommendation, you may also have to go in for an interview so the awarders can get a better idea of what you’re like.
Private Scholarship Application Tips
So we’ve gone over how to find scholarships, but how do you actually win them?
Well, there’s no magic formula that guarantees you to win. There are, however, many things you can do to give yourself the best chances!
This section and the following sections will take a look at some different strategies you can use to win the scholarships you find. This section will specifically look at the tips for your application.
Though scholarships have different requirements to be considered, almost every one requires some sort of application. This is most likely the bulk of what your reviewer will look at, so be sure to follow these tips to give yourself the best shot at impressing them.
Know the Deadlines
If you miss a scholarship’s deadline, you have a 0% chance at winning it. Use a spreadsheet or some other system to organize the scholarships you plan to apply for so you never miss a deadline.
This may go without saying, but it is never a good idea to lie on your scholarship application. Many reviewers will check to see if your information is true and if they find out that you exaggerated a part of it, you can forget about winning. It is also good practice to be honest, especially as you enter into adulthood.
Highlight Your Strengths & Accomplishments
Though there are places when being modest is a virtue, your scholarship application isn’t one of them. Don’t be shy about what you are good at and what you have accomplished. Try and highlight your achievements and what sets you apart as much as the application will allow.
Always go through your application after you finish it and check for grammar and spelling mistakes. These errors show a lack of effort and caring and could be a difference maker on whether you win the scholarship or not. Pro tip: print out your application to give yourself a better chance at spotting errors.
Private Scholarship Essay Tips
Though not all scholarships require an essay, many do. Many people find this to be the hardest part, so we’ve broken down the top tips to make your essay stand out.
Outline Your Essay Before Writing
It’s always a good idea to outline your essay before writing it. This way, when you are in the middle of writing you know exactly what to talk about and what is coming next. This helps your essay flow better and makes sure that you don’t miss any important pieces.
Be Original & Personal
Think about the prompt and how you could personalize it. The people reviewing these essays are most likely going to read a few hundred – try and make yours stand out. Try to avoid the obvious answers to whatever the question is. Instead, try to dig a little deeper to give a unique solution or response.
Like your application, it is crucial to proofread your essay. You are likely to make at least a few mistakes in your first draft, so go through it a few times and catch them all. As previously mentioned, printing your essay out increases your chances of finding mistakes.
Have Someone Proofread Your Essay
Lots of times you miss some errors when proofreading your own essay. A second set of eyes can often catch small mistakes that you didn't notice. Also, someone else might think a sentence is awkward or confusing even though it might make sense to you. Ask a parent, friend, or teacher to take a quick look at your essay and see what you may have missed.
Private Scholarship Letter of Recommendation Tips
Though they are not as common as essays, some scholarships require letters of recommendation. In short, a letter of recommendation is a one page or less letter to the scholarship awarder talking about you and their experiences with you. Typically, this person is a close teacher from high school or college, or in rare cases, a coach or another close adult. Here are some tips to follow to make sure your letter of rec helps you out.
Choose Someone that Knows You Well
Think of your high school or college teachers. Who were you the closest with? Who knows you the best? Who can attest to your accomplishments, work ethic, and character? This is the person you want to choose. This person will be able write you a genuine letter of recommendation – something that the reviewer will notice.
Make the Process Easier for the Writer
Even if the person writing your letter of recommendation knows tons about you, they don’t know everything! Write down a list of your extracurricular activities, achievements, and anything else that you think might help them write a glowing review of you.
Tell the Writer About the Scholarship
Make sure to tell the writer what scholarship you are applying for and what the company/organization values. This way, he or she will be able to tailor the essay so that it stands out to the reviewers.
Thank the Writer
Though this tip won’t help you win any scholarships, be sure to thank your letter of recommendation writer! Not only is this a kind gesture, he or she will be more likely to write you another in the future.
How to Avoid Scholarship Scams
Like all things involving money, there are people out there who try to scam students out of money through fake scholarships. Follow these tips to make sure you don’t fall for one of these (sometimes convincing) tricks.
Never Pay Anyone to Apply for Scholarships
This should go without saying, but never pay a company to apply for their scholarship and never pay anyone to apply for scholarships for you. This is an easy way to spot a scam, especially when scholarships are supposed to be free money.
Be Wary of Scholarships You Didn’t Apply For
Many scholarship scammers may try to scam you by telling you that you won their scholarship – even if you didn’t apply for it. In many cases, these people will ask for your bank account information or something else so they can steal your money instead of giving you it.
Never Give Secret Personal Information
While scholarships do often ask for quite a bit of information about yourself, be sure to never give secret information that could allow someone to steal your identity or money. Never provide your social security number, credit card info, bank info, or anything else that seems unnecessary for a scholarship application.
Final Thoughts on Scholarships
There you have it…You are now (hopefully) a scholarship expert. We hope you can take these tips and strategies to go out and win some free money for your higher education.
Whether you receive a full-ride scholarships (100% of cost of attendance scholarship) or just a few hundred dollars, every scholarship helps. Every dollar of scholarship money you win is one less dollar of debt you may have to take on - which you will surely thank yourself later.
Next up: Savings accounts/529 Plans
College Savings Accounts - 529 Plans
Many parents begin saving for their children well before they are getting ready for college. Some even start saving before they’re born! When started early on, savings account can generate a considerable amount of money in interest and are a great tool to pay for college.
If you are about to enter college, it may be too late to start a savings account that will earn a meaningful amount of money, but it is useful to know how they work – especially if you are using one to pay for your education.
The main type of college savings account is a 529 Plan. In short, a 529 Plan is a savings account with certain tax benefits that help you save money. 529 Plans are offered by states and certain educational institutions.
Funds taken out of 529 Plans are generally not taxed when used for qualifying college expenses. Funds taken out for other purposes, however, are taxed at a 110% rate. Furthermore, some states offer matching programs where they will match contributions in the form of a grant.
There are two main types of 529 Plans – pre-paid tuition plans and college savings plans.
Pre-Paid Tuition 529 Plans
Those using pre-paid tuition plans can purchase tuition credits at the current cost and use them later, even if the costs have increased. All of these plans allow you to pre-pay all tuition and mandatory fees. Some may let you also pre-pay for room & board and other expenses.
Most of these plans are backed by the state government in which they were taken out and require the person who took it out to be a resident of that state. The age of the child who the account is for determines how the plan is paid for and other terms.
College Savings 529 Plans
Unlike pre-paid tuition plans, this option does not allow savers to lock in current college costs. Instead the account owner can add in up to a max of $200,000 over time and choose where it gets invested – such as stocks, bonds, and money mutual funds. Also, this plan can be started in any state – there are no residency requirements.
Funds from these plans can be used to cover all qualified higher education expenses of college. This includes tuition, mandatory expenses, room & board, books, and computers.
Many of these plans are not backed by the state as they are dependent on the market. Additionally, there is no guarantee that you will earn money with this plan. You may actually lose money depending on your investments.
When to Use Your 529 Plan
You should turn to your college savings accounts after you have maxed out all available scholarships and grants, as they are free and don’t require you to pay any money or repay any money. Using money from a savings account is the next best way to pay for college because the money is already there and you won’t be charged any interest on it – such as student loans.
If possible, never take money out of your 529 Plan unless it is used for college. This way you will avoid unnecessary tax penalties and be able to use all of the money you have save specifically for college.
After you have exhausted all scholarships, grants, and savings for college, the next source of money is student loans. Though they often get a bad rap, student loans have allowed millions of students to attend college and learn new skills that will benefit them for life. If you use student loans responsibly, you can view them as an investment as opposed to debt.
This section will go over what student loans are, how they work, the different types, and strategies to save money both during college and after graduation.
What are Student Loans?
A student loan is, in short, money that is given to you to pay for college that you must repay with interest. Interest is what the lender charges each year to account for the money they’ve lent out and the risk they are taking on.
In most cases, student loans can be used to cover any expense related to college. This includes tuition, room & board, books, computers, and more. As long as the expense is related to your education, you can use student loans for it, just be sure not to use it on things that aren’t absolutely essential.
Before we dive into the nitty gritty of student loans, it is important to understand some basic principles of how student loans work.
First off, you can (and may have to) take out student loans for each semester of college. You can see what federal student loans you are eligible for by filling out the FAFSA. You can see if you are eligible for private student loans by applying on the lender’s site.
In most cases, you are not required to start paying back student loans until 6 months after graduation. This is called the grace period. Some private lenders, however, may require you to make payments after graduation or even during school.
When repaying your student loans, you will be required to make a monthly payment. The size of this payment will depend on the size of your loan.
Your primary contact for dealing with your student loan is your servicer. This is the company who manages your payments and helps you out when you run into any trouble.
If you fail to repay your student loans you will be in default. When this happens, your wages may be garnished and your credit score will drop, among other things.
Now let’s dive a little deeper.
There are two types of student loans: federal and private. This section will take a look at each, and will highlight the main differences to be aware of.
Federal Student Loans
Student loans from the government account for roughly 90% of all student loans given out. In general, these loans have more protections for borrowers and have lower interest rates as compared to private student loans. Because of these benefits, you should take out federal student loans before private student loans.
Types of Federal Student Loans
There are two main types of federal student loans for undergraduates: subsidized and unsubsidized.
Subsidized loans are reserved for students with more financial need. With this type, the government pays the accrued interest while you are in school and during periods of deferment (times when you cannot pay your loans).
Unsubsidized loans, on the other hand, are not based on financial need, and any student can receive one. The main difference between this type is that the government does not pay the accrued interest while you are in school and during periods of deferment. This means you are responsible for it and the loan will cost more than a subsidized counterpart.
Borrowing Limits and Interest Rates
Currently, students can take out a total of $31,000 in federal student loans over their colleges careers if they are dependent on their families. Those who aren’t dependents can take out up to $57,700. For a full breakdown of annual borrowing limits, check here.
All undergraduate federal student loans have the same interest rate each school year. The rates do not vary based on the borrower, the school they are attending, or anything else. All students who go to an approved school can take out the same student loan as anyone else in the nation. For the 2016-17 school year, the interest rates on all undergraduate student loans is 3.76%.
Federal Student Loan Benefits
As previously mentioned, there are many benefits that come with federal student loans.
All federal student loans, by default, come with a 10-year repayment plan. There are, however, many different repayment plans to help if you are having difficulty paying. Most of these are called Income-Driven Repayment Plans. This means that you will only pay a certain percentage of your income. This ensures that student loans never completely take you’re your wallet (and life). Though we won’t go into much detail in this post, you can read more about them here.
Another big benefit is the student loan forgiveness program. With this, select borrowers can have their debt forgiven if they work a certain job for some time. Typically, these plans require you to work in an underserved hospital or school, or public service field. It should be noted that the eligibility requirements for these programs are very strict and most borrowers will never qualify.
Finally, federal student loans are typically discharged in the case of total disability or death. Essentially, the government realizes that people in these scenarios, or their families, are unlikely to be able to repay their loans. Though this perk sounds like it should be a given on all loans, many private lenders don’t offer this benefit.
Private Student Loans
As we talked about before, you should only take out private student loans once you have exhausted all of your federal options. This is because of some of the key differences between the two types.
Private Student Loan Eligibility
First off, eligibility for private student loans is based mainly on creditworthiness or your credit score. The higher your credit score, the higher your chance of getting approved and the lower your interest rate.
Those who don’t have any credit, or good credit, can apply for a private student loan with a cosigner. A cosigner is usually a parent or close adult who shares the responsibility for repaying the loan. Even if you don’t necessarily need a cosigner, you will most likely receive a much lower interest rate if you apply with one.
Private Student Loan Interest Rates & Repayment Plans
Private student loans typically have higher interest rates as compared to federal student loans. Though borrowers with excellent credit, or borrowers with cosigners with excellent credit, may receive a loan with an interest rate lower than the government offers, it is uncommon.
Aside from varying interest rates, most private lenders offer both fixed and variable interest rates. Variable interest rates start off lower than fixed rates but vary based on the current market.
Another difference between federal and private student loans is the repayment plans offered. While the government only offers 10-year repayment plans to start, private lenders offer repayment plans ranging from 5 to 15 years.
Additionally, private lenders typically allow borrowers in school to make full payments, partial payments, interest-only payments, or defer payments until after graduation. It should be noted that private student loans all accumulate interest while the borrower is in school.
Private Student Loan Benefits
Unlike federal student loans, private lenders generally do not offer any forgiveness or income-driven repayment plans. In addition, they may not offer other protections that the government offers – such as those for death and permanent disability.
One benefit of private student loans is that they offer variable interest rates. Though it is not guaranteed, there is a chance you could save with this type of interest as compared to fixed rates. Also, private student loans typically have no origination fees, like the government.
Many private lenders offer unique perks that the government does not. Some of these include career support, free financial advising, and cosigner release.
Finally, there are typically no borrowing limits with private student loans. Most lenders allow students to borrow up to 100% of the total cost of attendance. This is great for people who still have a considerable gap between financial aid and cost of attendance after all other options are maxed out.
Smart Student Loan Borrowing In School
If you have to take on debt to finance your higher education, there are some things you should know that will make sure you use your loans in the most efficient way possible.
Only Borrow What You Need
The first tip is to only borrow what you need for your education. Calculate how much money you are responsible for after savings, scholarships, and grants. Then, see how much more money you need to cover all costs. Only borrow this much. This will help you avoid unnecessary spending of your student loan money.
Only Use Student Loan Money on Essentials
You should only use your student loan money for things that are essential. This includes tuition, room & board, books, and other required expenses. Do not use your student loan money to buy alcohol, to pay for entertainment, or anything else that isn’t completely necessary.
Pay Your Interest While in School if Possible
If you have unsubsidized or private student loans, it is a smart move to pay the interest while you are in school, at least. If you do this, the interest will not accrue and add to your principal balance. If you do not pay the interest, each subsequent interest charge will be higher (as the principal balance is higher). If you can pay more than just the interest, that is even better!
Start Planning for Repayment
You don’t have to wait until graduation to start coming up with a plan for repayment. Start doing research and make sure you understand your loan inside and out. Then, try and figure out what your monthly payment will be once your loans enter repayment, and try to come up with a plan how you will afford it.
How to Effectively Repay Your Student Loans
Once you leave school, either through graduation or something else, you will soon be required to start paying back your student loans, if you haven’t already. This is the time when people start really feeling the pressure of their debt. Though it can at times be stressful, there are certain things you can do to give yourself the best chance at paying back your debt.
Create a Budget
No matter what your current employment and financial status is, it is crucial to create a budget. Map out your monthly expenses as well as any income you have. Figure out if you have enough money to make your student loan payment and, if not, try and cut inessential expenses to make room for it.
Pay Off High Interest Loans First
If you had to take out multiple loans to fund your education, you may have loans with varying interest rates. In this case, it is beneficial to pay off your high interest student loans first as they are “more expensive” in a way. First, make sure you make the minimum monthly payment on all of your loans. After this, put all extra money towards your high interest loans.
Refinance Your Student Loans
If you graduated from college and now have a full-time job and good credit score, you may be eligible to refinance your student loans. When you do this, a private lender will pay off your old federal and/or private student loans, and issue a new one with a lower interest rate or lower monthly payment. It is possible to refinance and consolidate both private and federal student loans together or multiple of each type together.
Most borrowers who refinance their student loans receive a lower interest rate and save around $15,000 over the lives of their loans. Like private student loans, eligibility for refinancing is based on creditworthiness.
It should be noted that if you refinance with a private lender, then you will lose eligibility for federal programs such as forgiveness and income-based repayment.
To learn more about the eligibility requirements, application process, current interest rates, repayment terms, and lenders, check out our refinancing guide.
Consolidate Your Federal Student Loans Together
Though it won’t save you money like refinancing will, borrowers have the option to consolidate their federal student loans into one, easier to pay loan. When you consolidate through the government you will be given a Direct Consolidation Loan, which will have a weighted interest rate of all of your other loans.
Make Extra Payments When Possible
One of the best things you can do to save on your debt is to make extra payments when possible. This will reduce the principal of your balance, causing less interest to be charged and speeding up the repayment process.
Look into Income-Driven Repayment Plans if You Are Struggling
If you are struggling to meet your minimum federal student loan monthly payment, you may want to consider entering an income-driven repayment plan. With this plan, you will only be required to pay 10% - 20% of your monthly discretionary income (that is your total income minus what is deemed necessary to live). If you do not have a job, and therefore no income, you may be eligible for $0 monthly payments!
It should be noted that interest still accrues when you are in an income-driven repayment plan. The only exception is for those with subsidized loans whose minimum monthly payment does not cover the accrued interest. In this case, the government will pay the accrued interest for up to 3 years.
Final Thoughts on Student Loans
Though student loans aren’t the ideal way to pay for college, sometimes they are necessary. Student loans may mean the difference between attending college or not at all and can lead to countless opportunities that are inaccessible to people with only high school degrees. If you have to take on student loan debt, be sure to know the details about your loans, use them responsibly, and try to start planning for repayment ASAP.
College is often thought of as “the best 4 years of your life” and with good reason. You will have countless new experiences, meet more people than you could ever imagine, and have some of the most fun and stressful times of your life.
If you are worried about funding your higher education, just try and take a breath and develop a plan. This guide is a great starting point, and should at least give you a general idea of your varying options and how you should approach each.
If you have any questions about this guide or anything else, feel free to contact us and we would be more than happy to help!