Student loans can help cover tuition, room and board, books and other education-related costs. They may come from federal agencies or private lenders.
Federal loans typically offer lower interest rates than private ones and don’t require a credit check (except for Parent PLUS loans). Furthermore, they don’t need a co-signer and don’t require you to make payments while in school.
Federal student loans
If you need a loan to pay for college, federal student loans are usually your best bet. They offer lower interest rates than private student loans and some borrowers may even qualify for forgiveness after making certain payments.
Federal student loans must be repaid monthly through payments that are turned over to a servicer. Your loan servicer will oversee your repayment plan and contact you if any adjustments need to be made.
Private student loans
Private student loans are financial tools students can use to cover education-related costs. They’re offered by banks, credit unions and online lenders alike.
Lenders take into account your credit history and income before approving you for a private student loan. You may require the assistance of a co-signer in order to meet these criteria.
Private student loans often feature higher borrowing limits than federal student loans and can have either a fixed or variable interest rate.
Interest-only payments on student loan interest can help keep thousands of dollars in loan interest from accruing, decreasing your total debt and saving you money. These payments are especially advantageous while in school or if you don’t know when regular monthly payments on your loans will begin.
Unpaid interest on your loan can accumulate and be capitalized (added to the principal balance). When you make your initial monthly payment, this interest will be added back onto the principal balance. Capitalization can accumulate into a substantial increase in total debt over time, even if you are in deferment or forbearance.
Biweekly payments can help students pay off their loans faster and save money in interest costs. Unfortunately, lenders may not be accommodating this schedule so it may not be suitable for everyone.
If you want to try biweekly payments, start by calculating how much you owe and when your payments are due. Then create a budget that includes how much extra money must be put toward extra payments each month.
Automatic payments, or auto-debits, are an efficient way to guarantee your loan payments are always made on time. They’re usually free and easily set up through the servicer’s user-friendly online portal.
However, they come with certain risks that borrowers should be aware of before entering into this type of repayment plan.
The most frequent issue with this method is that your lender may make a payment to you that exceeds what was agreed upon when setting up the account. This could be due to unethical behavior by the company or an error on their end.
Making more than the minimum required payment
Students who make more than the minimum required payment on their loans can pay off their loans faster and save on interest charges. It also helps them build good credit and avoid costly late fees.
One way to accomplish this is by asking your lender to apply any extra payments you make toward the principal balance, not just next month’s payment. Be sure to inform your student loan servicer in writing that you would like the extra funds applied towards the principal.
Another option is to pursue a side hustle to earn some additional income. This could include babysitting, driving for Uber or Lyft services or selling your old clothes online.