Millions of young and middle-aged individuals borrow money for higher education each year. Because few can afford to pay cash for a college or graduate school education, the most common way to pay for school is with student loans. These obligations can be federally-backed or private, but both types need to be repaid in full. Once you graduate and begin working, you’ll need to start making payments on any money borrowed.
Often, the monthly payment can be much larger than you expect it to be. This is when some may simply default and stop making payments. Fortunately, there are several programs for helping borrowers get back on their feet and prevent missed payments from ruining their credit scores. It’s important to know the basics of educational borrowing before you sign a contract. Here are some key facts:
How Much Do You Need for College?
Carefully calculate the exact amount of money you’ll need to cover all your college costs. This includes tuition, books, room, board, travel to and from school, and other living expenses up until graduation. You can use this data to figure out how much you would need to borrow to cover everything. You can even add in a 5 percent cushion as well to factor in inflation, rising tuition costs, or even the simple fact that overall expenses will likely exceed expectations.
Am I Getting Value for the Money I’m Spending?
Some question the entire concept of borrowing for college. If you don’t want to go into major debt, consider attending a community college for two years and then transferring to a four-year institution to significantly save on costs. Additionally, if you attend an in-state school rather than a private one, your total debt will be considerately lower, or perhaps even non-existent.
When is the Right Time to Refinance?
Although you should always continue making payments in order to avoid going into default, if you are unable to pay your basic bills, cover the cost of health insurance, and are beginning to have severe financial problems, it might be time to consider refinancing student loans with a reputable company like Earnest. A good rule of thumb to know whether you need help is this: when your monthly payment exceeds 15 percent of your disposable income (calculated without the loan), then you are probably in over your head. Refinancing plans can give you breathing room. Here are a few ways you can benefit from refinancing:
- Your payments will be lower, thus freeing up funds for other living expenses
- You can refinance from a variable to a fixed-rate contract, which can remove the uncertainty that goes with fluctuating rates
- If you have good credit, it’s possible to get a significantly lower interest rate
Refinancing can make good sense as long as you know all the options open to you. It’s always a good idea to sit down with a professional financial counselor and look at the long-term impact a refinancing will have on your financial situation. In many cases, refinancing can be a smart way to deal with the situation.