Federal student loan interest rates have risen. Effective July 1, 2018, undergraduates who take out direct subsidized loans or direct unsubsidized loans will be paying 5.05% in interest – an increase from the previous rate of 4.45%.
But that's not all.
Graduate students who’ve taken out direct unsubsidized Stafford loans will see interest rates rise from 6% to 6.6% for the 2018-2019 school year. Graduate students or parents of graduate students, who’ve taken out direct PLUS loans will see their interest rates rise from 7% to 7.6%.
If you are still in school and taking out loans, government loans are most often the best deal for in-school students, even with the raise in rates. Without help from parents or grandparents, students absolutely should continue to take out federal loans to complete their bachelor’s or advanced degrees that lead to higher incomes. However, you should also consider ways to reduce how much debt you take on. The benefit of still being in school is that you still have time to reduce the total amount of debt you take out – which means less to pay back later. For example, you could take on an extra job to cover a portion of tuition and expenses and try not to borrow money to buy books or for living expenses.
At $1.5 Trillion, the national student loan debt is made up of tens of millions of Americans. The bad news, if this is you, is that you will certainly have to repay your student loan debt. The good news is that there are repayment strategies that can make it less painful. It is advantageous to start planning your debt strategy while you are in school, to help minimize what you take out and need to pay back.
You should store all records of any loans you have together in a safe space. Keeping your records side-by-side will help paint a clearer picture of your finances, and visuals are important. See?
If you’re like most students, you borrowed “as you saw fit.” This means a mess of different loans under different programs – and it means that your student loan debt can easily become a scattered mess. Make it easy on yourself and organize everything in one safe place, such as an excel spreadsheet, before you graduate. You can even prioritize your pile to make sure you take off the higher-interest debt so that you don’t end up paying more. Once you graduate, your interest rates can be lowered through refinancing. Which leads us to the next tip.
Some lenders have already increased their refinancing rates and others will likely follow. So, rate shopping is extremely important. Both parents and students should keep abreast of their options in the growing student loan refinancing market. As soon as a graduate has started employment in their intended line of work, they should visit student loan refi sites to see if they qualify – and to compare the rates available from refi lenders against the rates on their federal loans they are paying on already. With PenFed, you can see your rates without a credit check and by answering a few simple questions.
If you’re in public service, there are a number of debt forgiveness programs into which you should inquire, as they can stand to save you a ton of money, while allowing you to continue on your personal journey.
The Teacher Loan Forgiveness program, for example, forgives up to $17,500 of loans or can cancel Perkins loans if you’ve taught for five years (at a qualifying school). The Public Service Loan Forgiveness program will forgive the balance of your direct loan after 120 qualifying payments. But each one of these loan forgiveness options has its own set of rules. For example, the Public Service Loan Forgiveness program will require you to work for the government or a 501(c)(3) non-profit.
These steps can help lower your monthly payments and interest rates while in school and help you make the most of refinancing once you graduate. They can also help to eliminate clutter. Making several payments to several different loan agencies per month is not only an arduous task; it can also be ineffective.
Refinancing your student loans can help you get to your best interest rate and payment plan, and base it all around you. Income-driven financing plans from the federal government can get you to lower monthly payments, but generally come with more interest, so you’re paying longer, rather than smarter.
Parents often have more alternatives when it comes to borrowing. Parents with good credit may be able to borrow at lower rates than the federal loans their children have access to. Parents may want to consider borrowing against their homes (which generally results in the lowest rates) or taking out an unsecured private student loan.
Don’t forget that you’re paying interest on the amount you owe over the length of your loan. The faster you can pay off your debt, the less interest you'll pay. So, seek all available avenues, be organized, and consolidate where you can. Taking these steps will help to ensure that your financial life becomes yours sooner, rather than later.