Federal student loans are a great thing. They’ve allowed countless people around the country to easily get access to school funding where they otherwise couldn’t.
But when graduation is around the corner and you’ve got to prepare for payback time, it may seem like there aren’t many options other than paying a hefty monthly balance for years to come.
We put together a list of five things you probably didn’t know about paying off your student loans, and how you can use them to your benefit when your repayment period begins.
Five Things You Didn’t Know About Paying Off Student Loans
A few of these student loan repayment facts may surprise you.
5. You are the collateral.
Well, not entirely. You won’t be repossessed if you can’t make your student loan payments.
However, much like how a vehicle is used as collateral for an auto loan, your wages post-graduation are considered the collateral for your student loans.
Think of it this way. The student loan to go to college was an investment in your future ability to be in the career of your choice and make substantially more money than you would if you hadn’t gone to college.
Once you graduate, it is expected that you’ll get a job right away and will be able to pay off the loans with your new salary. While this is rarely ever the case, failure to pay your student loans could result in wage garnishing or your tax refund could be taken.
Be mindful of this. More often than not, monthly payments can be worked out so that they are more reasonable. Deferments are also a possibility, but depending on the type of loan you’ve taken out, you may accrue interest during deferment periods.
4. You can reduce your student loan interest rate by 0.25 points.
This little-known fact isn’t just a really useful way to reduce the total you owe, but it’s also insanely easy to do.
Simply arrange your monthly payments to be made automatic every month and your rate will immediately decrease. How simple is that?
3. You can stretch out your repayment period.
If you are in a substantial amount of debt or over $30,000, you can extend the repayment period to as long as 20-25 years.
It may not feel ideal to be in debt for this long, but the monthly payments will be substantially less. Just as well, once you’re able to make more income, you can pay off the loan as quickly as you please.
Federal student loan consolidation is always an option as well.
2. Want to ditch the city? It could earn you cash.
It’s true! Moving to a rural town or village can earn you several thousand a year to aid in paying back your loan and stimulating the economy of the small town you’ve moved to.
1. You’ll have to pay back the loans even if graduation doesn’t happen.
There’s a very poor misconception that if you don’t graduate or just attend school for a semester to decide if it isn’t for you, you won’t have to pay back the interest or entirety of the loan.
Regardless of your graduate status, that money was used to purchase your supplies and pay your teachers and institution. You will have to pay it back.
How was our guide to understanding student loans? Tell us what you think in the comments below!