Tag Archives: Student Loans

Reviewing Your Student Loan Summary

10 Jul

Many Purdue students received a summary of their estimated student loan debt recently via email. While it may be a sobering reminder of your current student loan load, it can be a good time to think about your loan debt.DFA logo

Knowing what you owe in total and your monthly payment will be important as you plan your future. Being mindful of your debt compared to your future earnings is crucial in making the investment in your education worthwhile.

Most experts recommend keeping your loan payments below 20% of your monthly income, or they will become a massive financial burden. A good approximation for repayment is that your monthly payment equals roughly 1% of what you borrow, or about $100 every month for borrowing $10,000.

42% of college seniors expect to earn more than $50,000 in their first job out of college, but only 23% of employers actually pay this amount to new grads. It’s important to keep in mind the average salary in your field is just that, an average, not necessarily the starting wage.

When it comes to repaying your loans, paying more than the minimum will go a long way in shortening your repayment length. If you do so, be sure to utilize the best payment method that works for you either targeting the smallest debts or the highest interest rates first. If your minimum payments are looking higher than you can afford, consider going on an income-driven repayment plan to help keep your loan from becoming too big of a burden.

As you go through school, keep in mind that there is a borrowing limit for federal loans. While the actual limit varies by dependent and independent status, as well as being a graduate student, for most dependent undergrads it is $31,000. However, due to yearly limits on borrowing most students don’t have to worry about this unless they end up attending for more than four years.

Be sure to average 15+ credits per semester in order to stay on track for a four year graduation, only one extra year can cost you over $138,000 in extra tuition, lost wages, and lost retirement savings.

If you have money from working in the summer and are wondering how you can pay down your loans, the first step is finding out which loan servicer has your loans. Once you have their information, you should be able to set up an account and make your payments online!

NSLDS1.2

Hopefully the loan debt summary has given you good information to borrow smart now and know your options for repayment in the future. Remember, you can always contact the Financial Aid office during our business hours (8 a.m. – 5 p.m., Monday – Friday) by calling or stopping in for any reason, or if it’s not a pressing matter feel free to email us at facontact@purdue.edu.

 Student Loans: Responsible Borrowing

29 Jun

Melissa Leiden Welsh, Ph.D., CFCS, CPFFE | University of Maryland

responsible borrowing.jpg
If you are planning to attend college, a trade school, or some type of post-secondary training after high school, you will also likely apply to obtain student loans. The challenge is to select loans that match your financial needs, not only when you are a student but also when you are earning an income following graduation.

Student loan debt has generally been considered “good debt” due to a borrower’s increased earning ability upon graduation. However, the amount of outstanding debt should be proportional to a student’s projected earning ability. Check out the following suggestions to keep from falling into student debt traps.

1. Evaluating Post-Secondary School Options

There are many things to consider as you look at educational opportunities and the decision should not be taken lightly.

Do

  • Look at different types of post-secondary school and make sure you fully understand the costs (i.e., tuition and fees, room and board) associated with each one. It’s okay to “shop around” for schools.
  • Complete a Free Application for Federal Student Aid (FAFSA). The FASFA is the gateway to federal student loans.
  • Examine and evaluate federal loan options. Federal loans will almost always offer lower interest rates than private loans, and you may be eligible for loan forgiveness programs, or more flexible repayment options.
  • Shop around for private loans if you don’t qualify for enough federal student loans. Even a slightly higher interest rate of 0.5% to 1% more can add up over extended repayment periods.
  • Examine potential career earnings upon graduation specific to your field of study. Some fields of study do not pay as much upon graduation as other fields. You may struggle to pay loans from an expensive post-secondary institution with a low paying career.
  • Get a copy of your free credit report at www.annualcreditreport.com to check for unauthorized action with your personal information. You may not even have a credit report at this time, but checking it will ensure you have not been a victim of identity theft.

Don’t

  • Overlook public in-state colleges and training facilities as they often charge lower tuition with degrees matching your career goal and financial budget.
  • Select colleges or post-secondary training sites due to a friend’s enrollment. While it is difficult to change social settings in life, it is far worse to study for a degree/certificate in a field you are not truly interested in studying.

 

2. Before Signing Loan Documents

Student loans are ultimately your responsibility to repay, so make sure you are paying attention when borrowing.

Do

  • Limit borrowing to the amount you need to cover tuition, books, and educational supplies.
  • Keep a running total of loans accruing from year to year. Only looking at semester or yearly totals may leave you surprised and overwhelmed with the final summary loan total at graduation. You can use the National Student Loan Database System (NSLDS) to check your Federal loan balances.
  • Keep a folder of all student loan related forms and information brochures, preferably both physical and digital. It is not only convenient to be able to find everything in a single folder, but also can be helpful when planning and evaluating repayment options.
  • Some loans require actions to keep loans in deferment/forbearance (no payments required) while remaining as an enrolled student.
  • Keep your contact information current with each lender. It is your responsibility to report a change in your address to the lender. A lack of current address is NOT an excuse for missing a loan payment.
  • Understand the terms of the agreement in regards to how loan amortization works, how interest will be charged, and if interest will be added to the principal of the loan, commonly referred to as capitalization. Some private loans capitalize more frequently than federal loans.

Don’t

  • Turn to the signature page and sign without reading all the text of the contract you are signing.
  • Use extra funds from the refund check for pizza nights, spring break, drinks with friends or shopping trips. These expenses will cost you more because of interest.

 

3. Searching for Jobs and Preparing to Graduate

It is important to consider your student loans as you near graduation and begin looking for your first post-secondary school job.

Do

  • Work hard to graduate on time. Extra years at school mean additional student loan costs and lost years of earning. 
  • Make a spending and saving budget to follow after graduation. Determine potential costs to help guide your financial decisions such as housing. It is important to look at the interest rate of each loan and work to pay off higher interest rate loans first versus small loans with low interest rates to potentially save thousands of dollars in interest costs.
  • Visit the Student Loan Estimator to determine your estimated loan repayment totals.
  • Examine and evaluate various repayment plans. Schedule an appointment with your university loan department to determine available options.
  • Read all correspondence from loan providers thoroughly before deciding to consolidate loans – some loans are ineligible for loan forgiveness programs once consolidated with non-eligible loans and loan consolidation does not necessarily lower interest rates.
  • Be cautious when deciding to pay for loan consolidation as many federal programs and some private banks offer free loan consolidation. You may receive solicitations via the mail that offer to do it for a free, but it is always free to do yourself for federal loans.
  • Explore tax credits for student loan interest payments.
  • Choose to sign up for automatic draft payments from your bank account. Automatic payments reduce the possibility of late payments and are often rewarded with lower interest rates too.

Don’t

  • Consider not paying your loans on time. Default on student loans can greatly impact your credit report. Lenders and other businesses use the information in your credit report to evaluate your applications for credit, loans, insurance, employment or renting a home.
  • Extend loans to a longer repayment time to simply have a lower monthly payment. Those extra months and years will quickly add additional interest costs beyond the principle.

 

Resources

U.S. Department of Education Blog

Student Loan Hero

Edvisors Network

Who Owns Your Student Loans?

6 Jun

Carrie L. Johnson, Ph.D. | North Dakota State University

When leaving college, whether you are graduating or taking some time off, it is important to know how much you owe in student loans and who you will be paying back. You may have kept track over the years, or maybe you didn’t. There are two types of student loans: federal and private. This fact sheet will show you how to determine the amount of student loans you owe and who you need to pay.

Federal Student Loans

The National Student Loan Data System (NSLDS) website is the best place to start when looking for history on your federal student loans (Direct Loans and Perkins Loans). To access your student loan information, you need your FSA ID to log in.

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The main page is broken down into four sections:

  1. Summary information for borrower; this includes your enrollment status and the date that status became effective.

  2. The next section will have any “warnings” that may be on your account such as nearing your aggregate borrowing limit or if you are in default on your loans.

  3. The Loans section lists every federal loan you have ever had and totals for your federal loans.

  4. Section 4 shows your Pell Grants.

To identify your loan holders and repayment amounts, focus on the third section shown below.
nslds4

By clicking on the blue button with the number in the first column you can see even more details about your loan. You will be shown the type of loan, what school you were attending when the loan was obtained, various important dates, amounts, disbursements and statuses, and your servicer information. The servicer is who you contact about repayment.

There are currently ten servicers the Department of Education uses for Direct Loans; you can find a list here. The servicer on a Perkins Loan is typically the school that extended the loan. However, some schools do have outside servicers or assign your loan to Department of Education. The example below shows what the servicer section on NSLDS looks like.

nslds3

Private Student Loans

The best way to determine information about the status of private student loans is to obtain a copy of your credit report. The credit report will include will total amount owed and the name of your lender. A free copy of your credit report can be requested by mail, telephone, or online every 12 months from each of the three credit reporting agencies (Equifax, Experian, and TransUnion).

By going to AnnualCreditReport.com you can get access to information about your credit history, including student loan payments. You will need your personal information to log on and you will also be asked a series of security questions based on your report. You can also request your credit report by calling 1-877-322-8228 or by mail using this form.

Resources

AnnualCreditReport.com 

National Student Loan Database System

Saving for College

 

The Impact of the Potential Cut to Subsidized Student Loans

24 May

Casey Doten, Financial Aid Administrator – Purdue University

The newest federal budget proposal has proposed reductions to several federal student aid programs including cuts to Pell Grants, Work Study, and ending the Perkins loan program, Federal Supplemental Education Opportunity Grant (FSEOG), Public Service Loan Forgiveness, and subsidized federal loans to students. This budget proposal in its current state would have a direct financial impact upon any student with financial need, not just those in the lowest income brackets.
Cuts to Sub Loan.jpg

Ending subsidized federal loans would likely have the widest impact of the proposed cuts as there are currently over 29 million borrowers of these loans.

Subsidized loans are one of the most common forms of financial aid available to students who demonstrate financial need. They differ from unsubsidized federal loans because interest does not accrue on them while the student is still in school. If a student takes out a $3,500 subsidized loan their freshman year, it will still be $3,500 when they leave school while an unsubsidized loan would have accrued an extra $612 of interest in that time.

The difference becomes more stark when you compare subsidized versus unsubsidized over four years. A student taking out the maximum in federal loans each year for four years would borrow $27,000, of which $19,000 is subsidized. That student would have $27,785 of debt when leaving college versus a student who only had unsubsidized loan (which is what the budget proposal would lead to) would owe $29,353 when entering their grace period on the exact same amount borrowed, with the exact same interest rate.

Once a student begins repayment, all of that accrued interest gets added on to their loan balance and further gathers interest. For a student using the most aggressive payment plan, they will pay $2,081 more over the life of the loan because their loans were not subsidized.

Keep in mind these figures use interest rates from the past several years. Since student loan interest rates are keyed off treasury bonds rates, if the economy were to increase at the rate projected in the budget then student loan interest rates raise even higher as treasury bonds interest increases. This would further exacerbate the difference between subsidized and unsubsidized loans.

While graduating in four years is considered the norm, only 36% of students pursuing bachelor’s degrees do so. If a student takes even one more year to get their degree, the time for their interest to accrue becomes even greater. Loans for these students who can receive subsidized loans totals $32,341 on graduation, while unsubsidized-only adds up to $35,305. These two groups have a $3,513 difference in the life of the loan.

All told, subsidized loans would collectively save the 29.5 million current borrowers $45.5 billion assuming they all graduated in four years. That number only grows higher when realizing that many students take more than four years to graduate.

Federal Student Loans are Getting More Expensive This Year

15 May

Casey Doten, Financial Aid Administrator 

College can be an expensive investment. So it makes sense that many students have to take out loans in order to fund it. Unfortunately, borrowing federal loans for the 2017-18 just became a little bit more expensive.

The interest rates on all federal loans went up 0.69% for the 2017-18 school year. So undergraduates taking out Federal Direct loans for 2017-18 will be paying 4.45% on their loans, up from 3.75% in the 2016-2017 school year. This also impacts other types of federal loans: graduate Direct loans will increase from 5.31% to 6%, and PLUS loans for parents and grad students will increase from 6.31% to 7%.Interest rate increase.png

So how much more does this interest rate increase cost you?

A freshman taking out the federal limit of $5,500 in unsubsidized Federal Direct loans for the 2017-2018 school year will be impacted by the new, higher interest rate. Compared to those freshman who started a year before, the 2017-2018 freshman will accrue $161 over their four years of college, (plus their post-graduation grace period) before they even begin making loan payments. For a student who doesn’t take 15 credits every semester, that number will only grow higher.

Once repayment begins, interest is also applied to that $161 that accrued while the loan was in deferment. So that extra 0.69% in interest ends up costing $456 more over the life of the loan if the student uses the standard 10-year payment plan, which has the lowest total interest paid. The grand total repaid at the new, higher interest rate is $8,134 on the original loan of $5,500.

Unfortunately, this means paying $456 more than students who began only one year earlier for the same loan.

Keep in mind that this change only impacts loans which are being taken out for the 2017-2018 school year. Any federal student loans already taken out and disbursed before July 1, 2017 will not be effected by this change.

However, variable interest rate private loans from previous years may also be increasing. While the change in federal loan interest does not cause private loans to change, they both calculate their interest rates based off the Treasury Department’s auction of 10-year notes. This means that when federal loan interest rates rise, old private loans with variable interest rates can similarly expect to see an increase.

If you want to calculate your own loans for the 2017-2018 year, use a two-step process:

  1. Input your loan information into the Accrued Interest Calculator along with how many months until repayment begins (this is often years until graduation plus three months). This will give you the loan’s balance when repayment begins.
  2. Plus those loans into the Federal Student Aid repayment calculator and see what your repayment is, including information on the different payment plans available.

Even with the higher interest rates, Federal Direct loans are almost always a better option than private loans. They typically have lower interest rates and more flexible repayment plans to go along with fixed interest rates.

While this increase in interest shouldn’t dissuade you from making the investment in your education, hopefully it gives you the opportunity to think about how much you may borrow. Anything borrowed has to be paid back, with (higher) interest.

Which Student Loan Repayment Plan is Right For You?

12 May

All information on repayment plans is from this article by David Evans, Ph.D.
Additional info added by Casey Doten, Purdue Financial Aid Administrator

Congratulations on your graduation! It’s an exciting time as you move into new jobs and new places! However, something from your past will be coming back soon – your student loans. Six months after leaving school most student loans are due for repayment. By default you are put into the the Standard Repayment Plan (which is also the most aggressive repayment option), but you have more options! Choose which Federal Loan repayment plan is the best one for your life.

There are two main types of repayment plans you can choose from: traditional and income-driven. For borrowers that will qualify for Public Service Loan Forgiveness (PSLF), income-driven plans may be the better option. Income-driven plans will require an annual verification of income. This fact sheet describes each of the repayment plans as well as pros and cons of each. For more information about each of the repayment plans visit the Federal Student Aid website.

Traditional Plansstudent-loan-repayment-plans

Standard Repayment Plan

The Standard Repayment plan consist of equal monthly payments over a 10-year period of time. This repayment plan is good for those who can handle making their monthly payments and make enough money to afford them. This payment plan is best for those who have minimal other debts and start working right out of school.

The Pros: You’ll pay off your loan faster compared to other plans, and pay less interest as a result.

The Cons: Your monthly payments will be higher than those made through other plans.

Graduated Repayment Plan

The Graduated and Extended Repayment plans could be an option for you if your income is low when you graduate but will increase quickly. Under a graduated plan, payments start out low and increase during the repayment period, usually every two years. This is a good plan if you can’t afford your current payments but know you will make more money in the years to come.

The Pros: Your loan is still paid off within 10 years.

The Cons: You’ll pay more interest over the lifetime of your loan compared to the Standard Plan.

Extended Repayment Plan

An Extended Repayment Plan is an option if your loan amount is more than $30,000 and you want to stretch your repayment to 25 years.

The Pros: Smaller monthly payments (since they’re spread out over as many as 25 years) and more time to pay off your loan.

The Cons: You’ll be saddled with payments for a longer period of time as well as pay more interest.

Income-Driven Plans

If you qualify for an Income-Driven plan, these are often the most attractive options if you’re willing to recertify your payment each year (it’s not very difficult). However, some of these are contingent on when you took out loans! If you’re interested in student loan forgiveness*, you’ll need to be enrolled in any one of these plans.

Income Based Repayment Plan

If you’re not making enough money to cover all of your monthly expenses the Income Based Repayment (IBR) Plan would be a good option. There are two separate calculations for IBR which are dependent upon when you took out your student loans.

The Pros: The IBR plan takes into account your annual income as well as your family size. Your payment will be 10% of your discretionary income** if you were a new borrower on or after July 1, 2014. Otherwise it will be 15%. Any outstanding balance on your loan will be forgiven after 20 (for undergraduate loans) or 25 (for graduate loans) years.

The Cons: You will have to pay income taxes on any forgiven debt unless you qualify for PSLF (this is true for all loan forgiveness).

Income Contingent Repayment Plan

If you have a federal Direct Loan (other than a PLUS loan), you could opt for the Income Contingent Repayment (ICR) Plan. Your payments could be as low $5 or even $0.

The Pros: Your monthly payment will be the lesser of 20% of your discretionary income or on a repayment plan with a fixed payment over 12 years. You can have your remaining loan balance forgiven after 25 years of regular payments.

The Cons: You’ll pay more over the lifetime of your loan than you would with a 10-year plan, your payment could be lower than the monthly accrued interest and your loan principal will grow. You will have to pay income taxes on any forgiven debt unless you qualify for PSLF.

Income Sensitive Repayment (ISR) Plan

The Income Sensitive Repayment (ISR) Plan is only available for those with Federal Family Education Loan (FFEL) Program. Payments are based on your annual income, family size, and total loan amount. You would pay the loan off in fifteen years.

The Pros: Each lender has their own calculation, but generally it is between 4% and 25% of your monthly gross income, although your payment must be greater than or equal to the interest that accrues.

The Cons: It’s only available for up to five years. After that time, you must switch to another repayment plan. You must reapply annually, and there’s no guarantee that you’ll have continued enrollment in the plan.

Pay as You Earn Repayment Plan

The Pay as You Earn Repayment (PAYE) Plan is another option for those not able to afford their current monthly payments.

The Pros: The PAYE plan takes into account your annual income as well as your family size. Your payment will be 10% of your discretionary income. Any outstanding balance on your loan will be forgiven after 20 years.

The Cons: PAYE is only eligible to those who were new borrowers on or after October 1, 2007 and must have received a disbursement of a Direct Loan on or after October 1, 2011. You will have to pay income taxes on any forgiven debt unless you qualify for PSLF.

Revised Pay as You Earn Repayment Plan

The Revised Pay as You Earn Repayment (REPAYE) Plan is very similar to PAYE. This plan was created to allow more borrowers the opportunity to have their payments lowered to 10% of discretionary income.

The Pros: Not dependent upon when you took out your student loan, the payment will be 10% of your discretionary income. Any outstanding balance on your loan will be forgiven after 20 (for undergraduate loans) or 25 (for graduate loans) years.

The Cons: If you are married, your spouse’s income will be considered whether taxes are filed jointly or separately. You will have to pay income taxes on any forgiven debt unless you qualify for PSLF.

Summary

Federal student loans offer various ways for repayment. If you are in a situation (like so many others who have taken out student loans) that is not ideal for standard repayment of your loan, consider these options. There is a lot to consider when you are trying to decide which repayment plan to choose. Using the Federal Student Loan Repayment Estimator can help you make your decision by showing you what your payments would be under each of the plans described above.

*A note about loan forgiveness: There are two different kinds of loan forgiveness, Public Service Loan Forgiveness (PSLF) and loan forgiveness from your income-driven repayment plan ending. While both plans require you to be enrolled in an income-driven plan to reap the benefits there are some key differences:
-PSLF requires being employed at a qualifying employer in public service (non-profits, government, etc.) for 10 years/ 120 qualifying payments before forgiveness takes place. Standard forgiveness is after 20 or 25 years depending on your repayment plan.

-Any loan amounts forgiven under PSLF are tax-free, but not under standard forgiveness! So if you still have a balance on your loans after 20 (or 25) years, you will owe taxes on what is forgiven as if it is income. While it’s still better than paying the amount back, it’s important to know it will have ramifications.

**Discretionary income = Your income – 150% of the poverty level in your state for your family size

Dear Class of 2017, About Your Loans

10 May

From WiseBread New Graduate Help Center: Reyna Gobel, Student Loans Expert

girl surprised by letter

 

Dear Not-Yet-In-Trouble Federal Student Loan Borrower,

You might have heard that the Department of Education will be sending out letters to millions of student loans borrowers. The letters target borrowers whose grace periods are ending, as well as borrowers who exhibit signs of trouble that could lead to defaulting on their loans. If you haven’t started repayment yet but are fretting about how you’re going to possibly repay all that money — stop worrying.

I’m writing you this letter to not only give you important details about student loan repayment, but also to help you be aware of potential issues well before trouble starts.

I Defaulted — Here’s How to Avoid My Mistakes

I defaulted on a federal student loan simply because I didn’t know it existed. I had over a dozen student loans from different lenders; I forgot about one loan and went into default. It’s easy to do, but it’s also easy to avoid. Just log in to the National Student Loan Data System. You’ll see all your federal student loans on this site, along with contact information. Either arrange to pay each individually, or consolidate them into one loan. This is also a great time to get a free credit report – it can alert you to any problems you might have, like having missed a loan or bill payment.

Then, know yourself. If you can’t keep track of each individual loan, you really need to consolidate them into one loan to streamline payments (ask your loan servicer about consolidation options). Once consolidated, you can still choose a plan where payments are based on income, such as Pay as You Earn. And if you’re interested in the public service loan forgiveness program, know that it’s only available through loans originated by or consolidated with Federal Direct Loans.

Realize That Even With the Pay as You Earn Plan, You Might Have Payment Problems

The income-based Pay as You Earn repayment plan bases payments on your income and family size, but it doesn’t fully consider your expenses if your circumstances change. For example, at some point, you may have to help support a sick parent or child. You could also have bought a home when your income was higher. After a pay cut, a majority of your income could go towards your mortgage.

If you experience a financial setback, you have three options:

  • Call your servicer and see if your Pay as You Earn payment amount can be adjusted. You have to supply your income annually, and you may have forgotten to do so this year, causing your payments to set based a higher income level.
  • Ask for a deferment or forbearance, which are temporary payment breaks. Taking a break should only be done if the situation isn’t permanent. Always take a deferment when possible over a forbearance when any of your student loans are subsidized. The government pays the interest on subsidized student loans during periods of deferment.
  • If your income is lower because you took family leave for six months, you may not want to change your plan. However, for long-term pay cuts where your income-based repayment is too high for your budget, you should ask your servicer to also calculate payment options and see which payment option offers the lowest monthly payment.

Don’t Feel Embarrassed If You Don’t Know Something About Student Loans

I wrote two editions of a 240-page book on student loans, and I still don’t know everything about them. I read articles and play with the student loan repayment calculators every day. There’s always something new to learn. For instance, the public service loan forgiveness employer verification form wasn’t created until after the first edition was released. Now, thanks to that form, you can find out if you qualify for the public service loan forgiveness program right away and register for it right after you start working or after you’ve already started repayment — the choice is up to you. Never be afraid to ask your servicer questions about any of these programs.

Talk to Your Friends Who Are or Will Be in Repayment Soon

I’m not the only person who has experience with and advice about student loans. Talking to your friends can help you figure out repayment options and possibly pick better ones based on their choices and experiences. Just remember, they might have different circumstances than you, such as income level, children, or other debt that impacted their choices. Therefore, you shouldn’t copy their decisions. But you’ll be more informed and learn questions to ask your servicer. Plus, they may have missed payments, recovered, and now have advice about that. Learn from others’ student loan mistakes and victories.

The Most Important Part of This Letter?

The help you get doesn’t end here. You can tweet me anytime — @ReynaGobel— and ask questions. My articles will be posted here every week. You can ask me questions in my CollegeWeekLive web chats or get more helpful advice in my book CliffsNotes Graduation Debt.

Finally, remember you never want to receive a “dear troubled borrower” letter. The second you think you might miss a payment, talk to your loan servicer about options for a payment break or new repayment plan. With federal student loans, that one call will likely save your credit.

Reyna Gobel is a writer, author, public speaker, and student loans expert.  Her financial advice appears on Wise Bread’s New Graduates Help Center, in her video course How to Repay Federal Student Loans, in CollegeWeekLive newsletters and keynotes speeches, and in her audiobook How Smart Students Pay for School, now in its second edition. Be sure to check out her website for more helpful information on repaying your student loans.

6 Easy Money Saving Tips Any Student Can Use

20 Apr

Jim Wang, Wallet Hacks
wallethacks.com

College is a fantastic time of exploration, freedom, and growth.

It’s also a time when many of our habits are formed, especially those about money and saving. These habits can have a ripple effect on your life so solidifying a few good practices today can help you better manage the future.

I have a list of 40+ money tips for college students, which cover the basics like emergency funds and budgeting, but today I wanted to share an extra set of just money saving tips every college student needs.6 Easy Money Saving Tips

Avoid credit card debt at all costs

It’s so easy to charge everything to plastic. Whether it’s textbooks, equipment, or a pizza, make sure that you pay off your credit card bill in full each month.

It’s so tempting to pay the minimum and push the debt off another month, but that will result in you paying hundreds of dollars (if not more!) in interest for nothing. If you don’t believe me, you can use this calculator to do the math yourself and find out how much that $20 pizza will cost you!

That’s money you can use to save for your retirement, for a new car, or your first house. Avoiding debt, especially high interest credit card debt, is priority number one after graduation.

Start budgeting

Budgeting isn’t the most fun thing to do but getting in the habit early is a good idea. When you budget, you have a better sense of where your money is going.

You can use tools like Mint or Personal Capital to help automate the process and when you’re older, you’ll appreciate the wealth of historic information you’re recording now.

Cook more, eat out less

Your studies and your social activities will probably take up a big chunk of your time, so you’ll be tempted to eat out more than you cook if you’re not on a university meal plan.

Resist the temptation! Eating at a restaurant, even a quick service one, is far more expensive than cooking at home. In the beginning, you’ll be terrible at it. Everyone is.

But stick with it and try to cook as much as you can. It’s healthier, cheaper, and you’ll get better the more often you do it.

Take advantage of student discounts

Businesses give student discounts all the time. They know that students don’t make a lot of money and they still want your business, so they’re willing to give you a break if they know you’re a student.

Always keep your student ID on you and ask if a student discount is available – you might be pleasantly surprised.

Use your student loan for tuition only!

Some student loans are deposited directly into your student account and some are deposited directly into your bank account. If you have one of the latter, do not use the money for anything other than tuition and school related expenses.

If you have no other choice, you can use it on necessities but your goal should be to avoid debt as much as possible. Sometimes you don’t have any other options, and that’s understandable, but make sure before you saddle yourself with student debt.

Earn a little cash in your spare time

We all have downtime during the day and on weekends – try to find a way to turn that time into money.

Whether it’s taking on a side gig, earning some cash online through surveys, or something bigger – building a side hustle that earns a little extra money can pay dividends in the long run. There are a lot of sites online that will pay you money for small segments of work, or gigs, and you can easily finish them in 5-15 minutes of down time.

Jim Wang writes about money on his personal finance blog, Wallet Hacks. Get his strategies and tactics for getting ahead financially and in life by joining his free newsletter.

 

Will Your Student Loans be a Burden?

31 Mar

 

Whether you’re an incoming freshman looking into financial aid or in the midst of senioritis ready to graduate from college, student loans have probably crossed your mind. Even if you know how much you will/ already do owe, it still ends up being an abstract figure in how it will impact your life.

student loan burden

A pretty simple rule of thumb to estimate your minimum monthly repayment without using a student loan calculator is to assume you’ll be repaying 1% of what you owe per month. That doesn’t sound like much, but that’s $100 every month for every $10,000 that you owe. So while the average 2016 graduate has $37,712 in debt that means they are paying about $377 every month to their loans.

And then there are people like me who borrowed a little more and are paying almost $550 for borrowing $48,600 ($54,800 thanks to interest).

If you’re not sure how much you’ve borrowed, you can check out the National Student Loan Database System (nslds.ed.gov) to double check how much in federal loans you’ve borrowed.

Even knowing what your repayment amount is doesn’t mean much unless you consider your future salary. A common problem here is that people overestimate their starting salary. Nearly half of 2015 grads thought they would earn $40,000 or more, but in reality only about ¼ of grads actually made it.

So if you’re earning a starting salary of approximately $35,000, your take home pay after taxes will be approximately $2,230 per month (depending quite a bit on your tax withholding and state you live in).

While there’s no hard rule about what a comfortable proportion of loan repayment is, we generally advise students that they are getting into a difficult territory if their monthly minimum repayment is over 20% of their take-home pay. So for the previous $35,000 salary that’s about $44,600 in debt according to this rough formula.

If you’ve ended up in a situation where your minimum amount due is a financial burden then you will want to explore the different repayment plans available to you. Just remember that the standard 10-year repayment plan that you are placed into automatically allows you to pay the least amount of interest and finish in the shortest time frame.

Additionally, if you seek out an income-based repayment plan with the hopes of earning public service loan forgiveness, keep in mind that it could be on the chopping block if politicians continue to see the program costs exceeding their original budget.

America Saves Week: Pay Off High Interest Debt

3 Mar

In 2012, 71 percent of students who graduated 4-year colleges took out student loans. Debt isn’t fun, but education is one of the better reasons to take on debt. While you may not enjoy paying back student loans there are some steps you can take to save yourself some money and make your payments hurt a little bit less.

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  1. Prioritize high-interest debt: While Federal Direct student loans are capped at 6.8%, private loans are not. Even worse interest rates? Credit cards. If you have credit card debt, prioritize paying it off before your student loans. 6.8% interest is no fun, but credit card interest rates 20% and higher can be crippling.
  2. Income based repayment: If you qualify for an income-based repayment (IBR) plan, do yourself a favor and apply for one. Generally if your debt is higher than your income you will probably qualify. Even if you are able to make your payments without much issue, an IBR can still save you money. How you may ask? If you keep paying the same amount you did before, you can target your payments toward either your highest interest or smallest loans depending on which repayment style fits you. Not to mention, if you are one of the approximately 50% of people who work in public service, you can qualify for loan forgiveness after 10 years.

Pick your payoff: There are two main methods for paying off debt when you have multiple balances to pay. The snowball and the avalanche method.

The snowball method entails taking the extra money you have and paying off your smallest debts first while paying the minimum on the rest. Then once that is taken care of, you roll that payment into the next smallest and knock off your obligations one-by-one. This is best for those who like the reward of seeing their different loans disappear the quickest and can help you stay on track easier.

The avalanche method is similar to the snowball where you make minimum payments on all loans but one. The difference is that you target the highest interest rates first. While you may not experience the visual rewards of seeing the small debts disappear quicker, you will save the most amount of money in the long run this way.

One way to not repay is by spreading out the extra you pay to all debts and pay a little bit additional on everything each month. This provides neither of the advantages that the avalanche and snowball method have while still costing you the same amount. You get less savings than the avalanche, and less of the reward that the snowball offers.

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