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STUDENT LOANS

 

By JL

Created on 8/2019

Student loans should be the first debt to be tackled as it cannot be erased even in the face of bankruptcy.

It may seem like a mountain, but it can be tackled with determination and diligence.

Steps to take when facing student loan debt:

  • Determine the amount of money you owe.

  • How long of a term (amount of years to finish paying loan).

  • Find out the interests and which loan or loans carries the higher interest. (it may be helpful to lay it out on a spreadsheet)

Here are the common questions regarding student loans.

1. What is interest?

It is the money the bank or lender will charge you for lending you the money.

Caution it could be variable or fixed, variable means it can change higher or lower at any time, this usually depends on the government. 

2. What is the Principal?

The total amount of money you owe.

3. What are the different types of loans?

You may have 2 different types of student loans:

  • Private

  • Federal

    • Direct Loan

    • Federal Perkins Loan

    • Federal Family Education Loan

Usually, Federal loan rates are lower but some may be subject to interest rate changes imposed by the federal government. 

Private loans usually have the higher interest rates. 

4. Should I refinance my student loan?

  • Yes

    • Multiple small private loans​

    • Private loans in unfavorable terms (high interest rate and/or variable interest rate)

    • Stable income

    • Good credit score >650 (refinance company with a good credit score to lend you the money)

    • If you verified that you are not penalized for paying your loan early

    • Check for any fees prior to signing

  • No

    • Qualify for loan forgiveness.  These are usually only on federal loans.  Find out here if you qualify.  Many options for loan forgiveness exist.

    • Poor credit.

    • Unemployed. 

Once your decision whether to refinance has been made, it is of paramount importance to decrease the spending and live within your means, in order to direct as much money as you can possibly can towards your principal. 

Find the best companies to refinance here.

5. Should I consolidate my loans?

  • Pros

    • Multiple Federal Loans

    • Cannot afford monthly payments, what will happen here is by consolidating the loan you extend the life of the loan (ie. 30 years) therefore the monthly payments will be lower. 

    • Variable interest rate loans - you may switch them to fixed interest, so in the long run interest rate hikes will not affect you. 

  • Cons 

    • The life of the loan will be extended (ie. 30 years)

    • you will pay more in interest since you will be paying it longer. 

    • Any outstanding interest will now become part of the principal therefore the interest payed monthly will be calculated on your new principal balance. 

    • Losing certain benefits in the original student loan. 

    • Consolidating your current loans will cause you to lose credit for any payments made toward income-driven repayment plan forgiveness or PSLF. ​

    • To read more on federal loan consolidation read here.

6. Should I schedule payments more than one time a month. 

This can actually be done through your lender.  The way we did it was making bi-weekly payments directed at the principal. This strategy goes a long way to help you pay off your loan faster.

7. What can I do if I cannot afford my student loan?

Whatever you do, DO NOT stop paying your student loan.  Federal government can use a variety of tactics in order to get their money back (garnish wages, withhold income tax return or withhold social security.)

You need to sit down and make a spreadsheet of your monthly expenses, down to the coffee in Starbucks you buy 4x/week.  Once you see what your expenses are, you will be able to cut all the nonessentials for the time being. You will have to make sacrifices in order to achieve your goals. 

Remember, the reason you are doing this is to get rid of student loans which is a real and unshakeable burden to you and your family.  I have made sacrifices in order to have my loans paid off.  It is not easy and requires planning and diligence.  YOU WILL DO IT.  YOU GOT THIS!

Till next time.

JL

Disclaimer - This blog is meant purely for educational discussion of finance. It contains only general information about financial matters. It is not financial advice, should not be treated as such.

 
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