3 Things You Need To Know About Student Loans

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Tuition Hero is a new resource site for everything you need to know about student loans. When you’re planning on attending college, student loans are one of the first things that come to mind. But, unfortunately, they can be confusing for even seasoned college students. Everything from the wording, stipulations, and payment plans can be overwhelming.

Student loans are challenging and can be a hassle, but they don’t have to be. In this article, we’ll cover three things you need to know about student loans.

1. Always choose federal loans before private loans.

The first thing you need to do when you’re planning to go to college is to apply for federal financial aid with the Free Application for Federal Student Aid (FAFSA). After completing the FAFSA, you’ll see what rewards you’re eligible for, including grants and scholarships, and what federal loans you can get.

Federal loans are always preferred over private because students don’t need credit history to get them, they offer income-centered payment plans, and there are more options for loan forgiveness. Private loans won’t feature these benefits. There are two types of federal loans, including subsidized and unsubsidized. Subsidized loans are for students with financial need and don’t accrue interest while they’re in school. On the other hand, unsubsidized loans build interest throughout students’ school years. You should only consider a private loan after maxing out federal student aid as they typically feature high interest rates, require credit history, and offer no loan forgiveness.

2. Only borrow what you need and can reasonably pay back.

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A critical factor many students don’t initially think about is paying back the loans. It can be easy to see thousands of potential dollars and accept it all. However, you don’t always need to, and it’ll mean you have less to pay back after graduation. Independent undergraduate students can borrow approximately $12,500 each year, while dependent undergrad students can borrow $7,500. Students using private loans are already limited to only the amount needed to attend school, subtracting financial aid that doesn’t need to be paid back.

When using federal loans where you have the option to choose how much you borrow, plan to borrow an amount that will keep your payments roughly 10% of your expected monthly net income after school. For example, if you realistically expect to make an annual salary of $35,000, you’ll want your student loan payment to fall around $195 a month. Keeping your payments limited to 10% of your monthly net income will ensure you can pay the loan back without causing hardship.

3. You will owe more money than you borrowed due to fees and interest.

Unfortunately, loan fees and interest will require you to pay back more than you borrowed for school. As a result, you should be prepared for the extra financial load that accompanies any loan. Federal loans require students to pay a loan fee, a percentage of the total loan.

Currently, undergrads’ federal student loan fee is 1.057%, but this is always subject to change. Interest will also accrue for your loan to be added to the total amount you owe once it’s time to start repaying. The current fixed federal undergraduate loan interest rate is 3.73%, but it is also subject to change each year. If you have to use a private loan, the lender will use your co-signer’s credit history to determine the interest rate.

Plan ahead while you’re still in school.

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With these three facts about student loans in mind, you can make a plan for your future. Remember to stick with federal loans when possible, only borrow what you need, and account for fees and interest. Federal financial aid is an invaluable resource for students that can keep these loans to a minimum. So, utilize financial aid and scholarship programs to lessen the financial blow of higher education.

Jamie Klein
Jamie Klein is the founder and CEO of The Green Parent. She regularly contributes articles to the site and can always be depended on to bring vegan donuts from Donut Friend to the LA office.

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