Getting a college education can be a good investment considering the high returns on the money you will spend. If done right, utilizing a student loan doesn’t have to be a nightmare after you’ve completed your studies.
Nevertheless, most Americans are struggling with student debts. In fact, two out of every five borrowers have fallen behind their loan payments at one time or the other. Before you accept an offer, it is always prudent to make sure that you are getting a good deal with a college loan that won’t push you into a trap.
Give federal loans a priority
If you really have to borrow a student loan, it is in your best interest to consider a federal loan before you can look into private options. Normally, federal options come with friendly requirements and options like income-driven payments, loan forgiveness, and better still, you don’t need to have credit scores to qualify. But if you still need to top up the college fees, you can compare several private options to find a loan with great terms.
Generally, you might get better offers from a credit union or a local bank. At the same time, you get outstanding customer service as opposed to what you get when dealing with a huge bank. When you are making comparisons of the various options available, you need to focus on features that matter most to you.
Settle for a loan with fixed interests but watch out for additional costs
With lots of loan options to choose from, you can get a lender who can give you fixed and variable interest rates. Basically, a variable rate can be low in the early stages but as time goes, it may increase exponentially. This happens because the rates are highly influenced by financial market index.
Besides the interest rates, you should be keen to look for hidden fees. Some loans may have a low-interest rate but having other costs may make the cost of borrowing go through the roof. To be on the safe side, read the loan agreement and try to find more details about the associated fees and penalties.
Consider debt consolidation
Most students have more than one student loan either taken from the same lender or different lenders. The truth is that making payments towards multiple loans can be daunting and expensive over time. Consolidation options will not only offer you better monthly repayments but you will also get a fixed interest rate.
Since people are different, this may not be a good idea for everyone. As such, you need to ensure that you are getting a consolidation plan that will give you attractive benefits. Generally, having an outstanding credit history will help you qualify for lower interest rates. The good thing is that you don’t have to extend the repayment period as long as you are willing to make extra payments towards the loan.
Consider forbearance and forgiveness options
When you start making repayments, you may experience a difficulty in making timely payments. One of the best ways to ensure this doesn’t have a negative impact on your account is taking advantage of forbearance. This option makes it possible to pause the payments for your loan for some time but it is good to note that interests will keep growing. Depending on the lender you are dealing with, you can get forbearance for up to 24 months.
While both options can give you a short-term break, forbearance is easy to qualify but you’ll have to pay the interest. On the other hand, deferment is more lenient since your loan doesn’t accumulate interests. Nevertheless, qualifying isn’t always easy.
It is possible to have your debt canceled. For example, teachers and other public servants may qualify for student debt forgiveness after they have served for some years. At the same time, if you are no longer employable due to a disability, you can have your entire debt forgiven.
Revise your repayment plan
When you start making loan repayments, you are signed up on the default repayment plan. While this option can be great if you want to clear the debt quickly, you may have to deal with high monthly payments. If you feel that the default plan is out of your league, you can definitely consider other plans.
The graduated plan is great for individuals who can’t afford high payments at the moment but they may want to pay more in the future. For the start, you will pay low amounts but they will increase every two years.
With an extended repayment plan, you are allowed to settle the loan in 25 years. You can either choose to get the graduated or fixed payments. However, you should know that this plan will result in higher payments through interests but you will have lower monthly amounts to deal with.
Income-based plans determine your payments based on the amount you are earning. Basically, this plan is appropriate for people who don’t have a consistent income. This means that you won’t struggle with payment if the amount you earn gets lower.
You shouldn’t refrain from getting a student loan just because you are afraid of getting into a bad deal. If you are keen when taking the loan as well as when you are making the payments, you can get a favorable deal. Since private lenders are different, not all the tips discussed will be applicable. However, you should reach out to your creditor if you are having difficulties with your loan.