Navigating the Student Loan Game

If you’re paying your own way through college, you’re not alone—far from it. Between tuition, books, rent, food, and everything else, what’s a girl to do?

Two-thirds of students graduate from college with some debt, and the average graduating senior’s student loan debt is $19,237, according to the National Postsecondary Student Aid Study. For many, navigating the myriad of student loan options and interest rates can be extremely confusing—and finding ways to manage and pay off the loans can become increasingly burdensome at times. Check out the following advice for more on dealing with student loans.

Types of Loans

There are three major types of loans to consider: federal student loans, federal parent loans, and private loans.

Federal student loans are the first kind to look at—these include the Stafford and Perkins loans. These loans are offered to you through the government, have the lowest interest rates so you’ll pay less long-term, and the government subsidizes the interest while you’re still in school. Loans such as the PLUS loan are also available for parents. To apply for federal loans, the first step you’ll need to take is filling out a FAFSA. Check it out at www.fafsa.ed.gov or by calling 1-800-4-FED-AID.

If you’ve maxed out your federal loans, or if you don’t qualify for them, the next option is private loans. More students are taking private loans every year to cover what federal loans won’t. These loans have generally have higher interest rates, and are loaned to you through a bank or other private company. They do have higher limits, though, which allow you to borrow more. Many also will get you the money you need in as little as 10 days, and some do not require your school to certify the amount you need.

Interest Rates?

The two major types of interest on loans are fixed interest rates and variable interest rates.

Fixed interest rates stay the same once you get your loan. If you sign up for a loan with, say, 6% interest, it will stay that way the entire duration of the loan. The federal government also sets limits for how high these interest rates can go.

Variable interest rates change over time. Most private loans come with these rates , and they are usually based on market indexes, such as the PRIME rate or the London Interbank Offered Rate (LIBOR). Private lenders will usually give you an interest rate by taking one of these indexes and adding a certain percentage to it – i.e. LIBOR + 2.5%. Since these rates tend to fluctuate, your interest rate can change anywhere from a few times a year to once a month depending on your loan.

Paying It Back

Ah, the best part of loans…paying them back. Depending on what type of loan you have there are several different types of repayment plans. Federal loans allow 4 types of repayment plans:

Standard: You pay fixed monthly payments of at least $50 for up to ten years.

Extended: You still make at least $50 a month in payments, but have 12-30 years to pay it off. Since you have more time, however, you end up paying more in interest in the long run.

Graduated: Here, you start with small payments and increase your payments over time. If you think your income will increase over time, then this option might be for you.

Income Contingent: This plan allows you to base the size of your payments off of your income, and recalculates your payments every year as your income changes. You have up to 25 years to pay off the entire loan.

For private loans, there are three major payment plans:

Immediate: Means you start making monthly payments about a month after you get the loan. Saves you money on interest, but it can also be very hard to pay off a loan while still in school.

Interest only: Means you make monthly payments of interest while still in school, but don’t pay off the actual principal loan amount until after you’ve graduated.

Deferred plans: These allow you to not make any payments until after you’ve graduated. If you have private loans, these can get quite expensive since interest accumulates while you’re in school, but may be worth it if it is too hard to make payments as a student.

Loan Forgiveness: There are some programs where if you do certain kinds of work or volunteer work, the government will forgive some of your student loan debt. These include teaching or practicing law or medicine in low-income areas, serving in the military, or volunteering with groups such as AmeriCorps or the Peace Corps. Check out http://www.finaid.org/loans/forgiveness.phtml for more information on loan forgiveness.

Shopping Around

Before committing to any type of student loan, make sure you do your research. Check out websites such as www.finaid.org and www.studentaid.ed.gov for comprehensive articles and tips about student loans, and calculators to help you figure how much that loan will really cost after interest. There are lots of student loan options out there for you, so make sure to compare them so that you get the best deal for you. Sure, loans can be costly—but a great education is well worth it.

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