Tag Archives | loans

Planning Future Finances: Will Student Loans Prevent You From Having It All?

Photo by Oliver Thomas Klein on Unsplash

Going to college is a top goal on many people’s lists. However, can achieving that goal be detrimental to future plans? With the average student loan equaling close to $40,000 (and some students even owing $100,000 or more), it’s enough to make anyone bat an eye once or twice. It can really make you question whether or not you’ll ever achieve your dreams of owning your own car, house, or business.

Despite accruing an impressive amount of debt, you can still do all those things and more. Here’s how you can plan for major life expenses while still paying off student loans.

Affording a Car

It can seem impossible to afford a car when you have to pay student loan bills on top of your other expenses. That doesn’t mean a vehicle is completely out of the question. Although you may not think your budget has room for a down payment along with various monthly payments, it is completely doable.

With a few strategic adjustments to your finances, you’ll be driving off into the sunset in no time. Here’s how you can start saving for a car while managing student loans:

  • Start With a Budget: Before you do anything, you need to know how much you’re spending every month. Creating a budget will help you determine expenses you can eliminate or cut back on to go towards your car purchase.
  • Estimate Potential Costs: After you make a budget for your current expenses, it’s time to estimate the potential costs of owning car. By figuring out how much you’ll pay each month on car payments, gas, insurance, and maintenance, you’ll have a better idea which car to get and if your current lifestyle can support the cost.
  • Pay Down Your Debt: Depending on how much of your student loans you’ve already paid, it may be wise to lower your balance even more when considering purchasing a car. How much debt you’re in can potentially affect your chances of getting approved for a car loan.
  • Save, Save, Save: Whatever extra money you make, put it aside in a savings account so it can grow and be there for you the day you buy your car. If you’re hard pressed to find money to spare, consider taking on side jobs to contribute to your car fund.

Financing a Home

Now that you have a car, you need a garage to put it in, right? Thankfully, plenty of houses come with one of those. However, now that you have student and car loans to pay, could a house truly be in the cards?

Of course. Like with planning a car purchase, there are different things you can do to make a house payment more financially feasible. First off, you need to be looking at homes you can afford. It does you no good looking at lavish estates that are way out of your price range.

By looking at homes that are within your budget, you can fall in love with the right house instead of pining for a mini mansion that’ll sink you into even more debt. Speaking of debt, the amount you have is extremely important to lenders.

Just like with car loans, mortgage lenders are looking for potential borrowers to have a specific debt-to-income ratio (36 percent or less including the mortgage to be exact). They’ll also be taking a look at your savings and credit score. To give yourself a better chance of getting approved, pay off as much of your debt as you can before you apply.

You can potentially make this easier by decreasing your student loan payments. This can be done by either refinancing your student loans or by changing your repayment plan to be income-driven. Whatever you decide, it’s important to make every student loan payment on time.

Late payments on any debt will hurt your credit score and will lead lenders to assume you won’t pay your mortgage on time either. The better your credit score, the greater your chances are that you’ll be approved.

Lastly, you’ll need to save up for closing costs and a down payment. Closing costs are usually 2 to 5 percent of the price of the house while down payments are usually 20 percent, and both need to be paid upfront.

Building Your Business

It’s the dream of many to be able to work for themselves. However, starting your own business is dramatically different, and riskier, than owning a car or house. The stakes seem especially high when you’re already thousands of dollars in debt with student loans.

Don’t let that deter you though. Many people with student loans have started their own small business, which means that you can as well. If you have two or more student loans, it may benefit you to consolidate them.

Doing so can decrease the amount of interest you need to pay and make it easier to make payments on time. In order to qualify, you’ll need a good credit score and have no defaulted student loans or bankruptcies on your record. Consolidating your loans may also require paying a fee and can affect the terms of forgiveness programs federal loans offer.

Another option is to apply for deferment or forbearance to lower monthly payments. The extra money you save can go towards your small business expenses to get it off the ground and running. Just remember that interest will still accrue even when accepted into these programs.

Finally, you need to work hard and cut or lessen every possible expense. Starting a business isn’t cheap, and having student loan debt makes it that much harder to raise the capital you need. If you still need to work a full-time job while your business is still in its infant stage, then do it.

Move back home with your parents if you have to or live with a roommate or two. Take advantage of public transportation as much as possible. Living frugally and shopping smart not only increase your chances of small business success, but also of repaying your student loans sooner.

Having student loans can make it feel like you have to put your life on hold until you pay them back. However, that doesn’t have to be the case. Owning your own car, house, or small business is possible if you’re smart with your finances. By creating a budget, utilizing different loan programs, and living inexpensively, you can live your life to the fullest despite having student loans.

This article was contributed by guest author Devin Morrissey.

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5 Things You Need to Know About Private Student Loans before Signing

Image by dickdonmedia, pixabay.com

For millions of college students, taking on student loan debt is not an option. Without it, the cost of college tuition would be beyond the reach of most families. This year, students will leave college with more than $30,000 in student loans and many will have trouble making their loan payments at some point in the future. With federal student loans, they have some options that can help get them through difficult times – forbearance, deferment and flexible repayment plans. However, this is not so with private student loans. Students with private loans have to sink or swim with the loan terms they have, which includes no forbearance and no repayment options.

In the context of the massive amount of student loan debt engulfing the U.S., private student loans play a smaller supporting role. Of the $1.4 trillion in outstanding student loans, about $150 billion are private student loans. But, for the 1.4 million students who take out private student loans each year, their financial future can turn out very different than if they had taken out a federal student loan instead.

Why Students Use Private Loans

For many students, private student loans do play an important role in financing their college education. Once a student exhausts all available federal options and still needs funds to cover college expenses, say, room and board, a private loan can fill in the gap. Under those circumstances, a private loan should only be big enough to cover the extra expenses. However, about 70 percent of students who take out only private loans do so because they are not informed of their other options. Of those students who used both federal and private loans, nearly half borrowed less than they could have in safer federal loans.

The key takeaway is that students and parents need to take all the time necessary to inform themselves of their options, especially in terms of their eligibility for federal financial aid. If they think they have a need for a private student loan, they should definitely learn all they need to know about them. Here are five things you need to know about private student loans before signing on the bottom line.

Private Loans Don’t Include Borrower Protection

The most important thing to know about private student loans is they do not have the mandatory borrower protections that come with federal loans. That includes deferment and forbearance options as well as extended and income-based repayment options. Some lenders may offer loan deferment, but it is typically done on a case-by-case basis. And, because private lenders do not offer loan forgiveness under any circumstance, if you get behind on a private student loan, you will be on the hook for as long as you live. Very few lenders will ever agree to a loan discharge, even in the event of a disability.

Many Private Loans Don’t Include a Grace Period

With most private student loans, payments must start once the loan is issued. With federal student loans, payments aren’t required until six to nine months after leaving school. That grace period is critical for college grads who need that time to secure a job. There are some lenders who do offer a grace period, but loan interest begins to accrue from day one of the loan.

Variable Rates Can Cripple You

Federal loans come with fixed rates, making it much easier to predict monthly payments. Many private loans come with variable interest rates. While they can seem very attractive in the beginning, they could easily double or even triple over the length of the loan term. Some lenders offer fixed loans and some may allow borrowers to convert their variable rate loan to a fixed loan. You should avoid, at all costs, variable rate private student loans.

You Need Good Credit to Qualify

With federal student loans, the only eligibility requirement is based on financial need. There are no credit checks. With private student loans, the student or a cosigner will need to qualify based on their credit and financial status. The lowest private loan rates are reserved for the most creditworthy borrowers. So, if you do end up qualifying for a loan with less than great credit, you will be stuck with a much higher loan rate.

You Will Probably Need a Cosigner

The reality is 90% of private student loans require a cosigner. Cosigners take on equal responsibility for loan repayment. Should the student borrower fail to make payments, the lender can go after the cosigner, which in most cases is a parent. A few lenders offer a cosigner release which takes the cosigner off the hook if the student borrower makes on time payments for a certain period of time. However, the lender may require borrowers to be able to qualify for the loan on their own before agreeing to a release. Less than 1% of cosigner release requests are approved.

Private student loans can play an integral role in helping students fund their college education. However, the overwhelming consensus is that students should fully exhaust all possible options in maximizing their federal and state aid. Under certain circumstances, many colleges will step in and either find ways to reduce expenses or supplement federal aid with a college or private grant. Leaving college with student loan debt can make life difficult. There is no reason to increase your burden, if you don’t have to, with an unmanageable private student loan.

Sources:

  1. https://www.uwcu.org/Rates/StudentLoan.aspx
  2. https://www.businessinsider.com/americas-student-loan-debt-facts-2017-4

This article was contributed by guest author Jennifer Loews.

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Quick Ways to Make Money While You’re Studying

Image by Fabian Blank, unsplash.com

Image by Fabian Blank, unsplash.com

An independent and fun-filled life is the fantasy of every college student. However, with the limited financial budget of a student, this fantasy remains just that – a fantasy. Moreover, college loan repayment is another obstacle that not only prevents this kind of life for students but also prevents them from investing independently and earning rewards to help financially support them.

1) Freelance
As a student, there are many ways to earn money. Content writing is one huge field that has helped many students. With a lot of freelance websites in motion, students can grab work that interests them, write articles and earn by selling those. Students can also start their own blogs and earn money through them.

2) Be A Tutor
If a student excels in English, they can earn by proofreading and editing articles of their peers or by becoming tutors. Teaching is the best way to excel in a subject and by becoming a tutor, students can earn, polish their own skills and knowledge and be a valuable service to those around them. Schools usually have teaching assistant posts or a campus tutoring center available where students can take the role of a tutor.

3) Become a Notetaker or Sell & Textbooks
Students with learning disabilities are provided with note takers that are compensated fairly well, and by taking up such a position, students can not only help their peers but also earn for themselves. Selling text books at the end of the term is another way income can be generated. Textbooks are a huge expense for students, so many look out for used books from seniors. Approaching such students results in a win-win situation for both parties.

4) Get a Part-time Job or Internship
Most universities and colleges have a career counseling department that provides students with opportunities to work with local or multinational companies. Students can look out for such internship / job opportunities and work part time. This would build their resume, provide them with adequate experience and help students make money. On campus jobs such as waitressing or administrative work in various departments are also available that help students to make money. Usually, students also participate in paid interviews, surveys and medical experiments that add cash to their wallets.

For most students, having cash to spend freely is a major issue; not only during their study years, but also after graduation. This is mainly due to the high amount of interest they have to pay on student loan repayments. While some students have their repayment strategies chalked out, most do not care to think about it until after they graduate and the grace period has almost ended. Hence, having made some money while studying at college can be a huge advantage for every student while at college and even after they graduate.

Earning while you study can also reduce your dependency on student loans, resulting in fewer repayment problems and reduced interest payments.

This article was contributed by guest author Henry Kingston.

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Key Factors Students Need to Consider Before Choosing a Loan

Image by COD Newsroom, Flickr

Image by COD Newsroom, Flickr

Planning for your future is one of those phases of your life that needs careful consideration. There is a lot of money to be paid for your college program, and you might end up either not being able to pay for it or left with the option to drop out.

There are easier ways to pay for your degree through student debt relief funds. Students can easily fix a principle amount for each month and the rest of the formalities for interest rate and term plan of the loan can be decided by the program.

However, there are a few key factors which must be considered by the student before he/she chooses the kind of loan they’d like and begins to make payments:

Choose Your Loan Program Wisely

There are many debt loan programs for students to choose from. However, a student must carefully go through the terms and conditions for any loan program and choose wisely which program may suit his/her needs, whether federal, private or government grants – it can potentially make all the difference.

Any loan program varies according to specific needs and requirements for the student and whether he or she qualifies for the program or not. It requires research and planning before any student can say ‘yes’ to a loan program. Discuss among peers and friends who might have opted out of a loan program and learn from their experience.

Planning Ahead

Once you have selected your program and have successfully gone through the process, plan out each and every dollar spending of your loan wisely. Remember, every dollar that you spend will cost you twice the amount when you have to repay that amount. Only plan out your spending for your educational program.

Also, look for additional student support programs to be able to pay for your loan. Part-time jobs or paid internships always come in handy. Always calculate your remaining debt and make arrangements beforehand to be able to pay for it – you don’t want to be in a situation where you’ll have to abandon your college program. Only borrow what you need initially and decide on the expected time period for repayment on the basis of your monthly payments.

Make the Smart Choice

People reason that Federal Student Loan programs are much easier to select, depending upon their fixed interest rates, flexible repayment plans, income based repayments and loan forgiveness aspects as compared to private student loans. Every student is different, so make the smart choice by doing your research – and don’t be afraid to get some counseling through your college’s financial aid office.

This article was contributed by guest author Henry Kingston.

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Planning to Eliminate Debt Post-Graduation

Image by GotCredit, Flickr

Image by GotCredit, Flickr

When preparing to apply for colleges and choose your major, it’s important to consider what kinds of debts you are getting into and how you are going to get out of them. Of course, for many, money will be a huge obstacle to obtaining higher education. With tuitions rising higher than inflation, there is cause to worry that many students get in over their head in debts that are near impossible to pay back.

It’s important to understand all the options available to you as far as paying back your loans, even before entering college your first year. There are certain fields and professions that make it easier for new graduates to wipe away debts in the long term at a fraction of the total repayment rate. If you prepare for those jobs ahead of time, and know what you are getting into, you can make the most of your college education to ensure you have the skills needed to succeed in those areas after graduation.

For example, most federal loans can be forgiven after 10 years of graduation and also offer low monthly minimum payments if you consistently work in the public sector or are working at either a Title 1 school, or elementary or secondary school operated by the Bureau of Indian Education (BIE). If you are planning to be an educator of any kind this is something to consider ahead of time.

Also, if you know you are going to be working in one of these situations after graduation then you can plan your studies accordingly, giving additional focus and attention to skills that will help you where you are going. In this way you might minor in ethnic studies so as to be more informed and sensitive to the issues facing the population you are planning to serve after graduation. Or choose to take language classes that might help you better communicate with students and parents.

In the case of doctors and dentists there are similar programs that help wipe out your student debts if you serve in underprivileged areas for certain amounts of time. The programs vary from state to state which is why it’s important to study up ahead of time and make a plan for yourself post-graduation.

You may not be able to work in a school or hospital in your hometown to start, but if you’re prepared to travel and are ready to live and work in new communities that you’ve worked hard to understand, then it will make the transition easier and the payback of loans that much more efficient.

Be aware of these loan forgiveness programs before you sign up for your student loan. Often times private bank loans are not forgiven so be sure you know what your options will be post-graduation.

Federal Loan Forgiveness Programs

The Public Service Loan Forgiveness Program
In 2007, congress created the Public Service Loan Forgiveness program to reward citizens who have chosen relatively lower paying jobs in the public sector, or work at non-profit organizations. This program forgives the remainder of a loan after 10 years of regular monthly re-payments. As an example, here is how the Public Service Loan Forgiveness program might work:
“Borrower is earning $40,000/year with a family size of four. The loan balance is $48,000, with an interest rate of 6.875%. Borrower could qualify for an income based payment of $52/mo. After making 120 qualifying payments, borrower would have paid $6,240 in student loan payments, and the balance of $48,000 – $6,240 = $41,760 would be forgiven. This does not include interest that would also be forgiven, and assumes that the person’s income and family size will not change for ten years.” ~Student Debt Relief

Teacher Loan Forgiveness Program
Arguably the most beneficial of all the forgiveness options is the Teacher Loan Forgiveness program – as certain qualifying teachers are eligible for both full forgiveness of the remaining balance after a 10 year term and principal reduction of up to $17,500. As mentioned above, an eligible teacher is one who is not currently defaulting on their loan and who is also working at either a Title 1, elementary or secondary school operated by the Bureau of Indian Education (BIE).The ten year Teacher Loan Forgiveness program is part of the public service loan forgiveness program, but in most cases teachers qualify for and receive benefits of both programs.

State-specific Debt Forgiveness Programs
In addition to federal student debt forgiveness programs there are also numerous state-specific programs that will alleviate all or part of your debts for certain types of service. Everything from volunteer firefighting, to dentistry, to volunteer work can help pay down your student debts.

Where loan-forgiveness is not an option, it may be suitable to consolidate loans into one lower monthly payment to at least avoid defaulting. This will put student borrowers in the position to seek out better employment and other opportunities for loan forgiveness in the long term.

Always read the fine print on any loan you are considering and consult with professionals regarding your long-term options before making any decisions about forgiveness or consolidation. Weigh the pros and cons of any option and also prepare to utilize the creative ways to pay off the loans after graduation so you’re not saddled with debt for the next three decades.

This article was contributed by guest author Barney Whistance.

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Student Loans Guide

by Simon Cunningham on Flickr

by Simon Cunningham on Flickr

The majority of university students have forever dealt with student loans. Past students may still be trying to pay off their loans while current ones may feel swamped with the amount of money they will have to pay. Luckily, there are many resources online that have great information for students on how to deal with loans and get rid of them as quickly as possible. Here is a consolidated guide on student loans:

  1. Many experts recommend consolidating loans, and it is something that students should look into, especially if juggling multiple students loans. It combines them all into one loan that can be paid off through one payment per month rather than multiple. This is a huge benefit that can save you money through a plan that better fits your financial needs. Keep in mind that you may end up spending more money if you choose a longer payment schedule, and it may be required that you have a locked interest rate, based on your multiple loans.
  2. Interest rates play an important role in deciding whether to consolidate your loans. Federal loans are presented with fixed rates which establish how much you will be paying throughout your loan schedule. Private loans are subject to change depending on whether they are a variable or a fixed rate loan. Both have pros and cons, but again what is important is that you find a payment schedule that best fits your schedule.
  3. An example of a strategy that can be used when paying off student loans is to pick the shortest payment schedule that you can manage. The longer the payment schedule, the more money in interest you will end up paying, which in most cases will lead to paying off way more than you borrowed.
  4. Attempt to pay more than you need to each month as well. That little amount that you add on to your monthly payments will save you money in the long run and get that loan paid off more quickly. Prioritize the most expensive loan too if you haven’t consolidated your loans, because again, you will save money and time due to the higher interest rates on that loan. Contrarily, you can prioritize your smallest loan to pay it off as quickly as possible. This will save you the most time in the long run because of how long the small interest rate schedule is.
  5. Look for student discount and loan forgiveness options if need be. Those small breaks will help you even if the discounts are very minimal. Loan forgiveness should only be used as a last resort option as it does come with some important clauses.

Student loans remain extremely common with the university population today, and will certainly be an important factor for students in the future. Consolidating federal loans is an option that can help students manage their finances while not impacting their financial situation due to locked interest rates. Private lenders can either save or cost you more money depending on the rates you choose. At the end of the day, pick the schedule and tips that fit your needs and will benefit you the most, in the area you wish to benefit the most. Just remember to always read the fine print.

Find out more about Loans and Consolidation from The Simple Dollar.

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Government vs. Private Student Loans

Image by jessiejacobson, Flickr

Image by jessiejacobson, Flickr

With all the costs of post-secondary education, it can become very difficult to find the money to pay for it. Luckily, with student loans, students can more easily pay for university/college. There are two forms of student loans: government loans and private loans (i.e. personal loans and student lines of credit). Depending on eligibility, students have the option to receive either. So, how do you choose which loan is best for you? Here are a few factors that can help you differentiate and choose between the two:

Government Loans

Private Loans

Interest rate Fixed interest rate and often lower than private loans. Variable interest rate that can substantially increase your debt if rates increase.
Loan repayment Repayment starts six months after graduation. Repayment assistance programs are made available for students who may need it. Monthly interest payments while in school and regular repayment (principal and interest) starts a few months after graduation. Repayment assistance is dependent on the institution.
Reapplying for loans Must reapply every year and takes approximately four to six weeks for applications to be assessed. Usually, half the loan is given during the first term and the other half is given during the second. No need to reapply each year. Typically, only Proof of Enrollment is necessary and funds will be available shortly afterwards.
Parental involvement Your parents’ incomes will affect the amount of your loan. The higher their income, the less financial aid you receive and vice versa. Usually need a parent to be a cosigner/supporting borrower.
Extra Perks You will be automatically assessed for Canada Student Grants when you apply for a Canada Student Loan. Also, government loans differ province to province and territory to territory. Some offer both federal and provincial/territorial loans, while others only offer one or the other. More information and applications to each province/territory’s respective financial aid websites can be found below.

Depending on the institution, a lot of aid can be made available to students; much more than that offered by government loans. Here are some options available for Canadian students:

Here are some options for American students:

Final Thoughts

With all the perks of a government loan, why doesn’t everyone just apply for them as opposed to private loans? Simply, it is because not everyone qualifies for these loans or receives enough from them. Government loans are given on a financial need basis and have a limit. Use the Student Financial Assistance Estimator to see how much money you can receive from the Canada Student Loans Program. In the end, those who do not qualify and those who do not receive enough sign up for private loans.

With that being said, student loans are a great resource for your education, but try not to rely too heavily on them. Depending on how much you borrowed and the interest rate, it can take several years to completely pay off the debt. This can make it very difficult for you to achieve other financial goals.  Remember to be smart with your money and good luck!