The College Post
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11 Things to Know About Student Loans Before Going Into Debt

Photo: Honey Yanibel Minaya Cruz/Unsplash

Every potential college student knows that tuition, lodging, and living expenses can cost an arm and a leg. Often, footing that bill through savings, investments, or a part-time job is virtually impossible. As a result, many students are forced to take out student loans to fund their education.

According to a report published by the National Conference of State Legislatures, the average graduate student carries a debt of about $65,000. In fact, apart from housing debt, student loan debts are the highest personal debt in the country!

Before you jump tens of thousands of dollars into the red, here are 11 things you need to know about student loan debt.


1. There’s a Big Difference Between Federal and Private Loans

Federal and private loans are not created equal. Federal loans have low and fixed interest rates, which are essentially the same for every borrower — between 2.75 and 5 percent. For private loans, interest rates are broader, and the lender may charge interest anywhere between 4 and 13 percent. That means private loans could make you cough up a whole lot more cash in the long run.

Another significant difference is the borrowing limit for federal and private loans. You can take out between $5,500 to 12,500 per year in federal student loans, depending on your school year and dependency status. The amount can go up to $31,000 in total for the entire course. However, private loan limits depend on your (or your family’s) ability to repay them.


2. Bankruptcy Cannot Eliminate Student Loans

Student loan debt is a ticking bomb, and unfortunately, if you have student loans and aren’t in a position to repay them, there’s no easy way out.

Student loans are not dischargeable during bankruptcy unless you can prove that repayment would cause “undue hardship.” However, it is nearly impossible to win an undue hardship argument. To do so means proving that you have done everything in your capacity to repay the debt and that there is little hope that you will ever be in a stable place to make regular loan payments.

Meanwhile, if you choose to simply stop paying installments on your loans, the government may garnish your wages by taking money directly out of your paycheck for the loan provider. In any case, the ball is not in your court.


3. …But Your Student Debt Can Be Forgiven

Here’s some good news: you can qualify for loan forgiveness depending on your college degree and current occupation. If you’re in public service or a non-profit job, you can apply for public service loan forgiveness.

There are also other schemes for disabled students and those who have income-driven repayment plans. In fact, even teachers, lawyers, and those serving in US Defense may be eligible to have their student loans forgiven.


4. Loan Repayments Aren’t Due as Soon as You Graduate

If you’re already stressing about repaying your student loans after graduation, don’t panic. For most federal student loans, you have a six-month grace period after school before you can start making repayments. This will buy you time to find employment.

On the other hand, most private student loans require you to make repayments while you’re still in school. Only some loan providers will allow you to put off your repayments until after you graduate. If you’re thinking of applying for a private loan, check first whether your bank has options for deferring or lowering loan repayments.


5. Once You’ve Chosen a Loan, Your School Will Do Most of the Work

When you’ve applied for a loan, the financial aid goes directly to your school for tuition, housing, and other payments. After the school has deducted these expenses, the remaining amount is transferred to you for your daily expenses. This ensures you don’t splurge on unnecessary purchases before paying for the necessities — like your tuition.


6. Understanding the Financial Aid ‘Award’ Letter Is Crucial

If you submitted a FAFSA and were approved for financial aid, your school will send you a financial aid award letter. A financial aid award letter explains the monetary assistance you will receive from the school, any internal grants or scholarships, and sometimes the expected cost of your tuition.

However, these letters can be confusing because they’re packed full of figures and differ between every school. A quick search of “how to read your financial aid award [college name]” will break down the letter for you and tell you exactly what to expect.


7.  Only Take Out Students Loans You Can Repay

This one’s a no-brainer because financial aid is rarely a gift. You’re responsible for paying back every penny with any interest that might be there on the amount you borrow.

It’s always important to know your student loan terms and how interest will add to your debt. While it may be tempting to borrow a little extra than your requirement, don’t bite off more than you can chew. If you’re not sure how much you should borrow, check a student debt affordability calculator online.


8. Student Debt Scams Exist — Here’s What to Watch Out For

You should always be wary of con artists tricking unsuspecting students into student debt scams. Usually, such companies demand upfront payment, promise loan forgiveness, or ask for sensitive personal information. They will even charge student loan borrowers for student loan assistance services offered for free through the federal government. 

If a company offers you loan-related services, contact your student loan servicer first. Student loan servicers are responsible for collecting payments and managing your debt on behalf of your lender. Depending on your student loans and whether you have a mix of federal and private student loans, you may have more than one loan servicer.


9. You Can Get a Loan or Scholarship Anytime, Even if You’re Still in School

As long as you have submitted your FAFSA, you can draw a federal student loan at any time of the year. If the deadline for completing FAFSA is over, get in touch with private lenders. 

You can also apply for grants or scholarships at any time of year — as long as you make the cutoff dates!


10. You Can Refinance Student Loans Later — and Get a Better Rate

Refinancing allows you to save more by replacing your existing loan debt with a new, lower-cost loan. 

A solid credit score and stable income can help you get approved to refinance your student loans. Lenders check your debt-to-income ratio that is your monthly income against your monthly debt obligations. Student loan refinancing could find you a lot of money to save, invest, or repay other debts.


11. Your Student Loan Money Can’t Be Spent on Anything

Your student loan is specifically for school-related expenses — tuition, textbooks, and transportation. Loans are intended to pay for college, so you can’t use the money to buy concert tickets or a Playstation. Cut down on extra costs and ensure you are using the loan for the right purposes.


Life with student loan debt can be frustrating — there’s nothing worse than watching your money go toward debt instead of a vacation, car, or your first home. To avoid stressful debt situations, make sure you research all of your options ahead of time to position yourself for the best outcome possible.