Student loans are almost a necessity when it comes to college, but unfortunately, these loans are accompanied by an unfavorable stigma of everlasting debt. If you thought that maybe you could borrow the money and dodge it until it disappeared, then you clearly do not know how student loans (or any loan for that matter) work.
In reality, student loan debt can stick with you much longer than you originally thought, and it normally creates tough obstacles when trying to make investments in home ownership or retirement. This is easily forgotten by the common college student whose main focus is most likely school and partying throughout enrollment.
In light of these obstacles, there are plenty of options and alternatives when it comes to student loans. Here are several tips found below that every student loan borrower should keep in mind before, during, and after college.
1. Scholarships and Grants as Alternatives
While taking out a student loan may guarantee thousands of dollars of debt in exchange for funding, a scholarship or grant guarantees funding without the debt commitment. This makes a scholarship or grant the ideal form of financial aid for college.
Scholarships are extremely common. They are offered across the country for various reasons including merit, characteristics, demographics, etc. The beauty of scholarships is there are thousands of opportunities which means anyone can find a good prospect. There are plenty of scholarship search engines online that make it easy to search for scholarship applications.
In addition to scholarships, there are grant opportunities that provide the same debt-free funding as a scholarship. These are offered by both the federal government as well as universities. Federal grants are normally awarded based on financial need while university-provided grants are usually given out based on either merit or financial need. Eligibility for a federal grant is decided by the FASFA while university grant eligibility varies by school.
2. Refinancing Student Loans
A common problem with student loans is how complicated they are after four years of borrowing. many college students require multiple loans throughout college. This complication leads to multiple interest rates capitalizing on different loans which is bad news for the borrower. On top of the added expenses, loan payments can get complicated when there are multiple minimum payments and due dates.
A common solution to this common problem is student loan refinancing. While not offered by the government yet, borrowers can refinance their student loans through a private lender. This simplifies loan payments by lumping them together; this leads to just one interest rate on the lump sum. Refinancing saves a considerable amount of cash over the repayment period of student loans, and it is one of the best options moving forward after college.
3. Student Loan Consolidation
Student Loan Consolidation is another option available to students who want to simplify their student loans, and it is a decent option for those who do not qualify for student loan refinancing. Offered by the Federal Government, consolidation works simply. Multiple loans are consolidated together and paired with a singular weighted interest rate. The end result is a much simpler and manageable student loan with a different repayment period and interest rate.
Consolidating often leads to lower monthly payments which can be helpful to struggling borrowers. Despite this initial relief, consolidation does not normally save money over the life of a loan; in fact, it actually ends up costing the borrower more. This is a viable option for short-term relief, but it should not be considered as the best long-term solution.
4. Tackle Interest Early
While in school, you have the option to pay interest on federal or private student loans, or you can let the interest accrue over a deferment period. It is common for students to ignore interest payments throughout college.
This practice is a mistake when considering its long-term implications. Since interest capitalizes, each month sees a larger interest accrual than the previous month. Letting interest accrue over four years leads to drastically increased overall payment on a loan at the end of its life. While paying interest early is not an attractive move for a broke college student, it is almost necessary for reducing overall costs.
5. Larger Principal Payments
Building on proactive student loan payments in college, there is another way to save money on the life of a loan. It involves paying extra on principal balance payments. Similar to paying interest early, extra-large principal payments may not appeal to the average borrower, but it is a simple and effective way to reduce lifetime loan costs. This simple tool can help you figure out how much you can save by paying extra each month.
This is another way to beat interest capitalization. By cutting down on the principal balance, there is less interest accrual each month. Like paying interest early, this requires more initial spending in order to spend less over the life of a loan. Combining this method with early proactive interest payments is a tried and true method for destroying student loans.
5 Ways To Save Money On Student Loans is a guest post written by Andrew Rombach. Andrew runs ScholarshipFly, which is a blog all about student loans, scholarships and finding extra money for college. With the cost of college skyrocketing, understanding how to get access to college money is an important part of personal retirement strategies. Many times, free money can be found.
As a father with one in college and another heading to college in 3 years, the best advice I can give is to seek out scholarships based on need or merit, and do it early. Don’t wait until your child is looking at colleges to understand where money can be found. I hope you enjoyed this article – Investment Hunting