How To Avoid Student Loans
Still not convinced that student loans are the worst way to fund your education? What if I told you that roughly 6% of students owe more than $100,000 in student loans ?7 According to our own Ramsey Research, 63% of student loan borrowers worry consistently about paying back the money, and 44% of them say they cant even buy a house because of their student loan debt.
You might be thinking: Okay, Anthony, I get it. Student loans are bad. Whats the alternative?
I like the way you think. And even though the rest of the world makes it seem impossible, you can cash flow your whole college experience with some smart strategies and hard work.
Here are just a few examples of how you go to school without loans:
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When Do You Start Paying On Your Loan
When you need to make payments varies based on the type of loans you have. Most federal loans have a six-month grace period after you graduate, leave school, or drop below half-time enrollment. Youre not required to make payments during the grace period, but in most cases, interest will accrue. You can choose to pay the interest that accrues during your grace period to avoid it being added to your principal balance.
Grad PLUS and Parent PLUS Loans do not have a grace period, but borrowers can choose to defer payments until six months after graduation.
For specific guidelines about repayment for Federal Perkins Loans, you should check with the school you received the loan from.
With the Coronavirus Aid, Relief, and Economic Security Act, all federal student loan payments were suspended, so your grace period may be longer than you initially expected. Currently, the federal student loan freeze is scheduled to end on January 31, 2022.
Whether your private loans have a grace period is dependent on your lender and the options you selected when you took out the loan. Many private loans do not have a grace period, so you may have to make payments while in school or immediately after graduation.
Q How Many Student Loan Borrowers Are In Default
A. Thehighest default rates are among students who attended for-profit institutions. Thedefaultrate within five years of leaving school for undergrads who went to for-profitschools was 41% for two-year programs and 33% for four-year programs. Incomparison, the default rate at community colleges was 27% at public four-yearschools, 14%, and at private four-year schools, 13%.
Put differently, out of 100 students who ever attended a for-profit, 23 defaulted within 12 years of starting college in 1996 compared to 43 among those who started in 2004. In contrast, out of 100 students who attended a non-profit school, the number of defaulters rose from 8 to 11 in the same time period. In short, the government has been lending a lot of money to students who went to low-quality programs that they didnt complete, or that didnt help them get a well-paying job, or were outright frauds. One obvious solution: Stop lending money to encourage students to attend such schools.
Thepenalty for defaulting on a student loan is stiff. The loans generally cannotbe discharged in bankruptcy, and the government canand doesgarnish wages, taxrefunds, and Social Security benefits to get its money back.
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Research Private Student Loan Lenders
There are many different private student loan lenders, but they all have their own offers. Look for lenders with low interest rates and flexible repayment terms. Do your due diligence by reading reviews and asking for recommendations.
To help you shop, use a to estimate costs based on available interest rates. Another way to get an estimate without impacting your credit is to , which uses a soft pull of your credit report that does not affect your score. Not all lenders offer this benefit.
Collateral For Student Loans Is Your Future Income
If you default on a mortgage or a car loan, the lender can simply repossess the item you took the loan out for. But student loans work differently. After all, its not like the bank can repossess your degree if you fall behind on payments. Instead, the collateral for student loans are your future earnings. This means that the lender is fully within their rights to take money directly from your paycheck, Social Security, and even your tax refund if you default on a student loan.
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Q Are Student Loan Burdens Economically Handicapping An Entire Generation
A. More adults between 18 and 35 are living at home, and fewer of them own homes than was the case for their counterparts a decade or two ago. But these trends are mostly due to these folks entering the work force during the Great Recession rather than due to their student loans. Federal Reserve researchers estimate that 20% of the decline in homeownership can be attributed to their increased student loan debt the bulk of the decline reflects other factors.
Student Loans Are A Blind Risk
That being said, any time you take out a student loan, youre taking a blind risk on something that has potentially serious repercussions for your future. Even though the average amount of debt owed by college students is just shy of $30,000, its not unusual for debt to be much higher. Most students going to a traditional university dont know exactly how expensive their education will be in the end, and college is just getting more expensive every year. Taking into account that the average yearly income for recent grads is only around $47,000, the amount of debt you owe can easily eclipse your ability to pay it back, which can cripple progress in life for years to come.
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Are There Alternatives To Private Student Loans
In addition to federal financial aid, scholarships, grants, and your savings, private student loans may be one additional way to pay for college. Private loans for students usually offer better terms than credit cards. Credit cards tend to have high interest rates and offer less flexible repayment options.
Between scholarships, grants, work study, your family and own savings are other alternatives to help pay for college you may be able to avoid borrowing more money. You may need to fill out the FAFSA to show unmet financial need. Data released by Sallie Mae shows eight in ten families indicate they are paying more towards their students education. This is in spite of the fact education costs are rising as of 2017 to 2018 according to the NCES.
Another possible option is a federal Direct PLUS Loan for Parents, in which the parent not the student is responsible for the loan repayment. There are pros and cons to Direct PLUS Loans. Parents who prefer their children be responsible for the cost of education may decide a private loan is the best option.
Direct PLUS Loans often offer reasonable interest rates and origination fees. In many cases federal loans offer less expensive terms than private educational loans. Students may qualify for private loans that are more competitive than Direct PLUS Loans.
Applying For Private Student Loans
If your community college does not accept federal aid, or if youve already reached your federal student loan limit, your best bet will likely be to apply for a private loan. However, private student loans dont have income-based repayment options or as many deferment options as federal student loans.
If you decide to go this route, youll want to be sure to check rates from private lenders and make sure that you understand the loan amount and any terms before signing on the dotted line. Credible can help you to compare loan programs without affecting your credit score.
You can also use their student loan calculator to get a better idea of what your monthly payment could be.
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Ascent Student Loans Disclosures
Ascent loans are funded by Bank of Lake Mills, Member FDIC. Loan products may not be available in certain jurisdictions. Certain restrictions, limitations and terms and conditions may apply. For Ascent Terms and Conditions please visit: AscentFunding.com/Ts& Cs
Rates are effective as of 09/01/2021 and reflect an automatic payment discount of either 0.25% OR 1.00% . Automatic Payment Discount is available if the borrower is enrolled in automatic payments from their personal checking account and the amount is successfully withdrawn from the authorized bank account each month. For Ascent rates and repayment examples please visit: AscentFunding.com/Rates.
1% Cash Back Graduation Reward subject to terms and conditions, please visit AscentFunding.com/Cashback. Cosigned Credit-Based Loan student borrowers must meet certain minimum credit criteria. The minimum score required is subject to change and may depend on the credit score of your cosigner. Lowest APRs are available for the most creditworthy applicants and may require a cosigner.
Be Realistic About What You Can Afford
Given the steep costs of college, few families can put away enough to pay the full amount. Instead, Kantrowitz recommends a less daunting savings target: Aim to have enough savings to pay one-third of your kids college costs by the time they start school.
Another third can be covered by current income, plus scholarships and grants from college, state, and federal programs. The final third can be funded with loans taken out by the student and parents.
When your child reaches high school, start scoping out schools that are likely to be affordable. Every school has an online net price calculator that will give you an estimate of your familys share of the cost to attend.
By comparing the expected cost with your savings and income, you and your child can focus on a list of schools that are likely to be within your financial reach. Just remember that you won’t find out the actual costs until your child is admitted and receives a detailed financial aid package.
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How To Take Out A Private Student Loan
Getting a private student loan is a bit different, as you might expect. Here’s what you do:
1. Research your private lender options.
With the number of private lenders you can choose from, it’s in your best interest to check out several of them. Specifically, you want to find a lender offering a low interest rate, the term length you want, and none of those unnecessary fees that can drive your loan’s cost up.
2. Check loan rates with multiple lenders.
When you have a few lenders picked out, it’s time to see what type of deal they’ll offer you. Many lenders will show you potential loan rates you could qualify for on their sites, making this step a breeze.
Just go to each lender’s site and provide some basic information, such as your name, date of birth, and Social Security number. The lender will do a soft credit check, which has zero effect on your credit, and then they’ll show you what loan rates you can get with them.
3. Pick the lender and loan you want.
Having seen what each lender has to offer, you should be able to pick out the best deal. Just make sure you understand all the details of each loan so you can make a fair assessment. For example, if you’re deciding between loans with fixed and variable interest rates, it’s important to realize that variable interest rates may start out lower, but can also increase later.
4. Fill out and submit an application.
Receiving your loan
Stick To A Standard Repayment Plan
While it may be tempting to switch repayment plans to get a lower monthly payment, try to stick to a Standard Repayment Plan if you can. Income-driven repayment or extended repayment plans can add to your overall loan cost.
By lowering the payment, were extending the term and adding to interest, says Streeter.
Stick to a budget and look for expenses that you can eliminate to make your student loan payments more manageable so you can stay on schedule with a 10-year repayment term.
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Borrow Subsidized Loans Before Unsubsidized
The FAFSA serves as your application for federal student loans as well. Youll be notified of what you can borrow in the financial aid award letter from any school that accepts you. There are two types of federal loans: subsidized and unsubsidized.
Subsidized federal loans go to undergraduate students with a financial need. The subsidy covers the interest on the loan while youre in school. Unsubsidized federal loans arent based on need, and interest starts to accrue immediately.
The Average Bachelors Degree Is Expensive
Theres a reason student loans are such a big problem. The average cost of tuition for a year at a private university is $34,740, while the average out-of-state tuition for a public university is around $25,600. However, in-state students do get a significant break on tuition at public universities they only have to pay an average of around $10,000 a year. Of course, none of these numbers take any additional costs for things like room and board into account. According to the College Board, public universities charge an additional $10,800 on average for both in-state and out-of-state students to stay on campus. Private universities charge a little over $12,000.So yeah, college is expensive.
Naturally, most of us dont have the funds to pay for even a basic 4-year degree out of pocket, so the go-to solution for getting a college education is to take on debt. On average, students who take out student loans just for the bachelors degree, graduate with around $29,800 in debt.
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Review Your Financial Aid Offer
After you submit your FAFSA and get approval for financial aid, each school that accepts you will send a financial aid award letter. This is what youll find in each offer.
- Cost of attendance : This is what you can expect to pay for one year of school, including tuition and fees, books and supplies, room and board, transportation and miscellaneous expenses like costs related to a disability or work-study program.
- Expected Family Contribution : This is used to determine how much financial aid youll receive.
- College grants and scholarships: Grants are usually need-based, but scholarships can be merit- or need-based. Neither has to be paid back.
- Federal work-study programs: These programs give you a job, on or off–campus, and a paycheck.
- Federal student loans: Direct student loans may be subsidized or unsubsidized, and youll have to pay them back when you leave school.
When you decide where youd like to attend, youll need to call the school’s financial aid office and let them know which loans you want to accept or decline.
How Do College Loans Work
In many ways, a college loan resembles a car or home loan. You contact a financial institution, explore loan options, and sign an agreement. You then receive funds you can put toward tuition, housing, textbooks, and fees. In many cases, you do not have to start repaying student loans until after graduation, meaning that you can focus on your coursework rather than worrying about making payments.
The best student loans for college feature an important benefit: relatively low interest rates. This feature means that you can pay back more of the principal each time you make a loan payment.
Student loans for college also feature a simplified application process. For some loans, you may only need to fill out a short form and submit your Free Application for Federal Student Aid results. Applications may also ask for a cosigner, which could be one or both of your parents.
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Types Of College Loans
Depending on your financial situation, you may be looking at a mix of federal and private student loans. In this section, you can learn about typical loan types, who qualifies, and other essential details. However, please keep in mind that this article only provides a general overview you should perform additional in-depth research before applying for any college loan.
Stafford Loans are the federal government’s primary method of helping college students finance an education. These loans come in two forms: subsidized and unsubsidized. The differences between these loan types can have a significant impact on your financial future.
Subsidized Stafford Loans
Undergraduates with financial need qualify for subsidized Stafford Loans. As long as you remain enrolled as a full-time or part-time student, the federal government pays your interest. In this way, the government subsidizes the cost of your education while you earn a degree.
After graduation, you have a six-month grace period until the loan starts incurring additional interest that you must pay alongside the principal. Additionally, you may qualify for an extended grace period depending on your financial situation after graduation.
Unsubsidized Stafford Loans
Two groups of students qualify for unsubsidized Stafford Loans: undergraduates without financial need and graduate students. Unlike with subsidized loans, the federal government does not make interest payments on your behalf.