If you’re one of the 44 million Americans who are currently carrying debt from a student loan, chances are you don’t understand your loan as well as you should. And as a graduate myself, I speak from personal experience.
In fact, according to our January 2016 survey, only 6.1% of students know their repayment terms, while only 7.9% know their current interest rates – two very important aspects of student loans. The truth is, not understanding these points can lead us to making costly mistakes.
In my experience, there are three things that most of us don’t know about our student loans.
1. Interest is Charged While We’re in School
I’ve encountered a number of student loan borrowers who are perplexed when they begin paying back their student loans six months after they graduate and notice their loan balances display a dollar amount that is higher than what they originally borrowed.
While this may seem surprising, what most of us don’t know is that unless we have subsidized federal loans, we’ll be charged interest on both our federal and private loans while we’re in school. That’s why some borrowers (myself included) pay the interest while we’re in school or whenever else we’re not required to make payments.
Paying interest-only is an option that is affordable for most of us, and the advantage is it will keep your loan balance from growing before the dust has settled on the coffee cup in your new dorm.
2. You Can Apply For Co-Signer Release (If You Have Private Loans)
Getting private student loans can be difficult if you’re an undergrad, since many of you will currently have no significant work experience, credit history or income. This makes it challenging for you to find a private student loan lender willing to loan you money. If you’re able to find a bank or student loan lender that will lend to you, the loan will often have a high interest rate or require that you have a co-signer.
Understandably, many people aren’t willing to co-sign student loans. Your parents are a likely choice as co-signers but some parents don’t have good credit histories themselves or might be struggling with low incomes. Others might fear it will put their own financial future at risk. Meanwhile, friends and other family members may be too concerned about the dangers of co-signing student loans.
What very few students know is that most private student loans have something called co-signer release. That means that if you, the borrower, make a certain number of on-time payments on the loan, you can apply to have your co-signer released from the loan. Then, after the release only you will be responsible for the loan in the future.
Depending on the type of loan, you can be eligible for co-signer release after as little as 12 monthly payments or as many as 30. If your potential co-signer is nervous about their responsibilities, this information could reassure them and make them more likely to do so and help you out in this initial stage.
If you already have private student loans with a co-signer, you can call your loan provider or read through your terms to see if it offers co-signer release. If it doesn’t and you now have a job, a steady income and credit history, consider refinancing your loans in your own name to free your co-signer from their obligations and the associated stress.
3. There Are Options If You Can’t Pay
Understandably, you likely don’t want to think about what would happen if you’re not able to pay your student loan. But unfortunately, more and more of us are missing payments. Surprisingly, as of July 2015, 7 million Americans were in default on their loans.
Many of us may simply forget to send in our payments, but this can lead to a world of hurt and a number of negative repercussions down the road.
If you haven’t yet missed a payment but fear you might, it’s best to call your loan servicer as soon as possible and explain your situation. They can help you by allowing you to potentially switch to a different repayment plan that might offer lower monthly payments, or assist you in applying for deferment or forbearance. By being proactive and calling before you fall behind on your payments your student loan provider will be more likely to work with you.
What you don’t want to do is default. At that point, options like changing your payment plan are generally not available. On top of that, you could have to pay collection costs, be liable for the full amount of your loan immediately, or even have money taken directly off your paycheck.
As I mentioned, I’m a grad myself and I understand the woes of student loans and the potential consequences of not making your payments. But with this information you can make informed, empowered decisions about your student debt and have more control over your financial future.
Author: Dave Rathmanner
Join the LendEDU Newsletter
News, insights, & tips once a weekThanks for submittingPlease Enter a valid email
Student Loan Guides
Student Loan Reviews