Just How Are You Going To Pay Your College Loans?
March 15, 2009 by Michael Fleischner
Filed under Financial Aid
The days of paying for college in full, without some type of loan or Federal assistance are long gone. More students are graduating college with more debt than ever before. College costs have increased significantly and the consumer’s ability to pay has only changed slightly. As a result, more students owe money upon graduation.
There are a number of pays to pay off your college debt. Fortunately for those who have taken Federal loans, grace periods and deferments can help you until you find a full time job that allows you to begin making payments against your loan. Regardless of your employment situation, the responsibility of loan repayment is yours and yours alone.
When you evaluate all of your loans, you may be thinking how on earth you are going to afford your payments. Depending on your loan type, you may have a number of options for restructuring your debt and altering your payments. Whether you leverage the benefits of student loan consolidation or simply work with your lender to stretch out payments for a lower monthly amount, there is a good deal of flexibility to be had.
If you want to pay off your loan more quickly, reducing the amount you pay significantly over the life of the loan, then follow this tip. Each year, make one additional monthly payment and apply it directly towards the principle amount of the loan. By doing this, you lower the outstanding amount which reduces the significant amount of interest you pay over the initial 10 year loan period. Don’t underestimate the power of one additional payment on an annual basis.
You should start by speaking with your lender. Do they penalize you for early repayment? If so, what are the costs? Balance those against the longer repayment cycle and the potentially tens of thousands of dollars you must pay in interest over the life of the loan. More often than not, banks are willing to accept early payment without penalty.
One thing to look out for is how the lender treats your extra payment. A common mistake is that individuals send in the extra payment without any directions for the lender. As a result, they think that you are just advancing next month’s payment. In order to take advantage of early repayment, you need to write on the check, “apply to principle”. If you don’t, they will simply put it towards the following month’s bill. This obviously defeats the purpose as the principle is what you are trying to address.
Get yourself into the habit of making one extra payment each year. This may seem like a difficult task, but think of it this way. Even if your monthly payment is 350 dollars, saving 30 bucks a month to put towards your loan at the end of the year is really no big deal. The result is you will only be making payments for say, 7 years versus 10. Short term pain equals long term gain. Imagine what it would be like to not have that monthly loan.
Some people are truly overwhelmed by the idea of paying back a large amount of debt. The key is to focus on making your monthly payment and at the same time, lowering your overall outstanding amount. Speak with your bank, creditors, and lender to understand how they can help ease the repayment process. Over time you will find you debt has vanished and you saved thousands in repayment.
“Each year, make one additional monthly payment and apply it directly towards the principle amount of the loan. By doing this, you lower the outstanding amount which reduces the significant amount of interest you pay over the initial 10 year loan period. Don’t underestimate the power of one additional payment on an annual basis.”
- I definitely agree!