Mistakes happen in life. But some mistakes can be more costly than others. When it comes to your student loans, knowing what mistakes are common and how to avoid them could save you more than a little stress and worry – it may end up saving you plenty of money in the long run.
To help you avoid making these costly mistakes, our student loan experts have compiled a list of the four most common mistakes borrowers make with their loans. If you find yourself in any of these situations, the sooner you take care of the problem, the better of you’ll be.
Depending on your credit history, co-signers and other loan requirements, private loans can sometimes be found at low interest rates for the life of the loan. This is a great deal if everything lines up, but these private loans are missing a few key elements that federal student loans offer. And it usually ends up costing you more money than you anticipate.
Federal student loans give borrowers some amazing benefits. For one, if you have a private loan, you may be given a grace period before you have to start repaying, but that grace period usually ends before you finish school. With federal student loans, you won’t have to begin repaying your loans until after you’ve graduated or left school. This gives you time to settle into your new job before you start making monthly payments.
Next, while interest rates on private loans can be minimal, interest rates on federal student loans often come in lower than those from a private lender. What’s more, undergraduate students who exhibit a financial need may qualify for subsidized loans, meaning the federal government will pay the interest on your loans while you’re still in school.
Need additional incentives before considering a federal student loan? Here are a few more.
Best of all, by having a federal student loan, you may have the option to participate in one of several student loan forgiveness programs, which will wipe out some or all of your debt after you meet a program’s requirements.
Even if you’re a borrower of an income-driven repayment plan, your monthly payments may be more than you can afford, particularly if you have more than one loan you’re paying off. Instead of making multiple payments each month on separate loans, many borrowers choose to consolidate two or more loans into a single student loan – and as a result, a single monthly payment.
Consolidation isn’t for everyone, but it can be a way to reduce your loan payments by extending the amount of time you have to repay the loans. In some cases, you can take loans that require the balance to be paid in full within a 10-year timeframe and convert them into 30-year loans with lower interest rates and lower payments.
Another added benefit: consolidating your federal student loans could give you access to other repayment options and forgiveness programs that you weren’t eligible for before consolidation. Not to mention, you could get a fixed rate on your new loan that would replace any loans with variable rates as well.
Today, roughly 4.3 million borrowers have student loans in default, totaling more than $70 billion in delinquent payments. Sometimes this is due to financial challenges, while other times it’s simply because the borrower doesn’t set up automatic payments, and the payments they would be making to their lender get lost in the shuffle of life after college.
Missing student loan payments can have serious consequences, including wage garnishment and losing the inherent benefits of a federal loan program. However, when you make payments on time, you not only keep your credit in good shape, you open yourself up to other options like loan forgiveness, consolidation and better interest rates if you plan on refinancing.
By setting up automatic payments with your lender, you’ll never have to worry about missing a payment. But more than that, you might even get offered an interest reduction from your lender for doing so. Many borrowers have seen their interest drop by a quarter to half a percentage point simply by setting up payments that are automatically deducted from their account.
Plus, if you have the income, you can usually make a higher payment than the required monthly minimum, which will allow you to pay off your loans that much faster.
When you have a variable rate on a student loan, this means that the interest on your loan will fluctuate periodically throughout the life of the loan. In some cases, this might involve monthly changes to your interest rate, and as a result, higher monthly payments than you were anticipating when you signed on the dotted line.
The benefit of having loans with fixed interest rates is simple: you know how much you’re paying each month in interest, and that amount will remain unchanged for as long as the loan is active. So, if you agreed to student loan terms that include a five percent fixed interest rate, that rate will remain steady until the loan is paid off. With a variable interest rate, however, you may find yourself making larger payments at times, which means spending more money over the full repayment period.
If you find yourself in any of these situations, you should take a look at your options by speaking with a student loan specialist at LoanForgiveness.org. Get started by filling out our online form or calling (800) 771-6358 to find out how much you could be saving on your student loans in minutes.