College can be expensive, but it's a smart investment in your future. Higher education typically pays for itself many times over in the form of higher wages and increased job opportunities.
Education debt is an example of "good" debt when handled correctly: borrowing only what you need from federally subsidized sources first, making sure other education loans are approved by your school, and minimizing high interest credit card debt.
For most graduates, college debt definitely impacts life after college. In fact, most student loan repayment schedules last 10 years or more - that's 120 monthly payments.
What if you could reduce your payment amount significantly by simply making different choices? If you are just starting college, sticking to a monthly budget is one of the best ways to lower your overall debt. Please review our materials on "financial health" for more information on budgeting and saving money while in school.
If you are near graduation or have already graduated, you'll want to understand all of your repayment options. There are many repayment plans that are designed to fit your income, some of which reduce your monthly payment.
How Are Federal Loans Repaid?
You can repay your loans by sending monthly checks to the servicer of your loan or you can set up automated payments, so your payment is deducted from your bank account each month. Automated payments reduce the chances of a missed payment, which can mean additional fees and higher interest rates. Some lenders and loan servicers offer a discount off of the interest rates if you set up automated payments from a bank account.
There are several different options for structuring the amount of your monthly payments on federal loans.
It's important to keep in mind that any plan other than the Standard plan will be more expensive overall. While the monthly payments may be lower, interest accrues over a longer period of time. Longer repayment schedules may almost triple the amount of interest you pay.
If you have private loans, your repayment schedule will likely be most similar to the standard one above, though you may have the ability to choose a repayment option: immediate repayment of principal and interest, interest-only payments while enrolled in school, or no payments until after graduation.
Student loans are often the first loans you will have. Repaying them responsibly will help you establish good credit and help you qualify for future loans on big ticket items such as a car, house or even graduate school.
Don't forget - if you can pay off your student loan early, you could save thousands of dollars in interest!