Knowledge about loans?
Hello, I am currently a high school senior and will be graduating very soon. Student loans have been a cause of great stress for me. While financial aid appears to cover the majority of my college costs on paper, It is clear to me that I will have to take out loans at some point. Through my school I am eligible to receive $1,750 a semester in subsidized loans. I will be working during the summer to cover any costs that can not be handled with subsidized loans, as well as reducing the total amount in loans I will have to take out.
I understand I will most likely have to take out these loans, I am very afraid to get into debt and I need to know how loans work. I understand that they will accrue interest after I graduate or stop being a full time student because they are subsidized, but If I have to take out multiple loans over the course of college, how is repaying them generally handled? Is there a specific time I need to pay them back by? Can I pay for my loans while still attending school (reducing the balance before interest starts to build)? Is each loan handled separately, or in one lump sum(Subsidized Stafford loans from the govt.)? I am not knowledgeable about this in any way and I would appreciate any help offered. #college #student-loans #loans
1 answer
Leah’s Answer
Evan - first, you are ahead of most by having already thought about how loans will impact you long term. The answers to all these questions are generally going to be in each loans' fine print sections. Fine print is boring and can be scary the first couple times you read it (they are normally written by lawyers who focus more on making them legally binding than easy to understand), but once you've made it through a few you start to see what's common and what's different. Don't be afraid to look up the definition of terms they use, I still do this regularly!
The terms of each loan will probably be different, meaning different interest rates, different length of payback (usually between 5-20 years with some exceptions for fields like education) and different "hardship" clauses. You can normally pay down the principal of your loan while you are still in school which will reduce the overall amount of interest you owe (there might be some exceptions that have an early repayment fee involved - keep an eye out in the fine print for that). Each loan is usually separate unless you choose to go through the process of consolidating them under a single entity. Generally if people consolidate their loans, it is usually after they graduate and because they will get a better average interest rate across what they owe back and it is more convenient to track and pay one loan than several. Some student loans, especially those offered by governments, have lower interest rates and clauses for hardship that are friendlier than the average bank or financial institution normally offers so make sure to think about the options each offers when making decisions.
A final note on debt - the best way to think about whether debt is reasonable to you is to research your anticipated starting salary in the field you plan on graduating from and put together a tentative monthly budget for your graduated self. Make a conservative estimate of how much money will you bring in, minus how much will be spent on rent, utilities, having a cell phone, food, transportation, etc. How much money is left over? Some portion of that leftover amount will likely go to paying down student loans for several years after you graduate. The more you spend on paying your debt down, the faster you will get it paid off and the less interest you will end up paying over the life of the loan.