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Borrow money only if you have to. Every dollar you borrow now will be owed later with interest.
Module Transcript
Like any kind of debt, student loans must approached carefully, since how much you borrow now will have a definite impact on your life after college. Think about it - just borrowing $2,500 per semester as an undergrad will result in a bill for nearly $230 per month for 10 years!
Put another way, you'll be paying $230 per month until you're 32 years old. And that loan payment may impact your ability to borrow for other reasons. For example, if you decide to buy a home, you may qualify for a lower mortgage interest rate if your outstanding debts are lower.
We're not suggesting that student loans are bad, just that debt - any debt - should be minimized when possible. As we show you in the financial literacy modules, controlling your everyday spending while in school is a great way to minimize college debt.
Today the average student graduates from college with nearly $20,000 in student loan debt for an undergraduate degree. Unless you win the lottery on graduation day, this debt will mean hundreds of dollars per month in loan payments for up to 10 years or more. That said, student loans are an indispensable key to college for many students. That's why it's important to choose federal and private loans that best fit your needs.
Federal Loans
Many students with federal loans receive a combination of subsidized and unsubsidized loans. Subsidized loans are loans in which the government covers the interest on the loan while you're in school, potentially saving you thousands of dollars.
For unsubsidized loans, the student borrower is responsible for the interest as it accrues daily. Interest that accrues and is not paid during any school deferment is added to the loan amount, thus increasing the size of your loan. This process is called "capitalization". For example, if you borrow $1,000 and are charged an interest rate of 6.8% per year, you will owe not $1,000 at the end of your four years, the original $1,000 loan will now be a $1,272 loan. If possible, it's best to repay the interest as you go on unsubsidized loans.
Stafford loans are the most common federal student loan. Students who are dependents of their parents can borrow up to $23,000 for undergraduate education; independent students can borrow up to $46,000.
Perkins Loans are similar to Stafford Loans, except the financial need requirements are stricter and the interest rates and fees are lower. Students can borrow up to $4,000 per year with a maximum of $20,000 for their undergraduate degree.
Further, there are many alternative loan options available to you, such as the Parent Loan to Undergraduate Students (PLUS) program, depending on your parent's financial situation. These loans can be used to cover the difference between your aid package and the cost of attending school.
Repaying Loans
After you graduate, leave school, or drop below half-time enrollment, you typically have a six-month grace period before you begin repayment. The grace period allows adequate time for you to find a job and start earning money. We suggest you try to pay off the loan quicker than scheduled to help save additional interest expense.
Remember, you are responsible for any money you borrow whether or not you complete your degree.
My Loan was Sold!
Student loans may be sold to another lender. The loan holder (the company who originally made the loan to you) is required to notify you by mail if your loan is sold and give you the name and address of the new loan holder. Even if your loan is sold - which is a common practice - your rights, responsibilities, and repayment obligation won't change.
To help ensure that your rights are protected, it's important to do a couple of things. First, notify your lender whenever you move - if your loan is sold and you do not get the notice, you will not know who to send your payment to.
Second, keep copies of all papers regarding your school loan. You'll have problems later if you can't find your promissory note, can't remember what type of loans you received, or don't know who you're supposed to repay or how you go about postponing repayment if you should have financial difficulties or choose to attend graduate school.
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