Simple Guidance for the Complex Decision of Student Loans
Scribbling your signature on a piece of paper (or sometimes even just clicking on a computer) to take out a student loan for college is an easy, fast process. Quite possibly, too quick and easy. Though simple to agree to, taking on the responsibility of student loan debt is a big decision and should be made with clarity on what exactly you’re agreeing to – before you sign (or click). Doing just a fraction of the homework you intend to do in college on the loan terms and conditions you are agreeing to can save you much frustration and regret in the future. This process doesn’t need to be frightening or overwhelming, but it should be one in which you are diligent and informed.
Generally, when you decide to apply for a student loan, your first stop will be the FAFSA website at studentaid.ed.gov. Some of the factors that have an impact on your eligibility include your family’s income, dependent status, college enrollment status, and even the amount of any previous loans (as there are limitations). These factors will determine the types of loans you are eligible for, the interest rates these loans may carry, in addition to the kind of assistance you may qualify for when you begin paying them back.
Types of Student Loans
There are generally two types of loans available: Subsidized and unsubsidized loans. Subsidized loans require a fixed amount of money to be paid back, but the interest rates stay the same. Unsubsidized loans can be used as the student is in school, but the cost of the loan as well as the interest increases. If you are an undergraduate or you cannot afford a subsidized loan, an unsubsidized loan is undoubtedly still an option, but the implications of an ever-increasing debt should be heavily considered before agreeing.
When you take out a loan, you legally acquire that debt and the money owed to the lender, company, or agency that lent you that money. The money that you pay back is expected to be slightly more than the money you borrowed for your education, which will be dictated by your interest rates, repayment plans, and any fees associated.
Paying Back The Debt
Although paying the debt back in full is an option in most cases, not everyone can manage that. As such, your lender or a financial aid service will set a minimum amount of money that you owe each month. Though this number will be consistent (which can help with budgeting), the installments required are going to be dependent on the size of your debt and how much time you have to pay it back in its entirety. Paying the money back to your lenders is usually a straightforward process that can be completed online.
You can pay back more than the minimum amount each month, directly to the remaining amount you owe. This is called making a ‘principle payment,’ but the monthly installment format was designed to ensure you pay your money back while also being able to live day-to-day as you further your career, and hopefully, increase your yearly income. Paying your debt monthly will provide the ability to budget and ensure you still have the money you need for living expenses, insurance, food, etc.
What If You Aren’t Able To Pay Your Lender Back?
If your income is not enough to pay the standard monthly amount, then you can ask your lender to restructure your payment plan. If your request is granted, you can pay less per month, with the catch being that you will be paying off the loan for much longer.
If you need more time to find employment after graduation, or at some point, you want to return to college for a career change, then you can request something called a forbearance. A forbearance will allow you to delay the deadline to start paying your debt so that you can return to education and have more time to start earning money. If you are going back to college, however, you might need additional loans to continue your education, so your debt is sure to increase.
As long as you pay the portion of your debt each month that your lender requires, then it is possible to continue living comfortably while making progress on your debt. The process of borrowing and paying back student loans is flexible for nearly every student, but it is still critical to fully grasp the responsibility you are taking on and explore all options with your lender or financial aid service before signing your name.
Opinions expressed in the article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
