Higher education is now usually synonymous to college debt. Young children are being raised by their families, societies and even media by consistently pointing out the importance of a college degree. And there are even college degree holders who want to take it a step further and takes up post-graduate studies. And for most, the more education you pursue post high school, the bigger your college debt could become.
Children will have an idea of how they can become doctors or astronauts or even firemen when they grow up. Because they want to be able to save lives, put out a fire wearing those cool helmets and an axe or just see other planets, they form their dreams early on. Little do they know that college education costs a lot.
College debt is now affecting about 40 million Americans according to Fox17online.com. It means that there are more people in the US with student loans than the whole of Australia and Ecuador combined. That is a lot of consumers who has to balance their student loan payments together with their living expenses and other forms of debt or loans.
NPR.org explains that the total student loan debt amount is at $1.2 trillion to date. This is the amount that has steadily grown over the years and even in the midst of the Great Recession. Credit card debt and auto loans now have smaller debt amounts compared to student loans. With all these students racking up college debt, how much do you know about student loans?
Understanding some truths about college payment
As parents and children prepare for college education, understanding the payments for college debt is also an important matter. As the children decided on the course they want to take and the school they want to go to, the parents need to understand also some facts about the repayment of those student loans.
Co-signing a loan is not as easy as it seems
It is innate in parents to want to look out after their children even when it comes their finances. Yes you want them to learn as much as they can to do things on their own but there will be times that they will ask for your help. And when they come knocking in your door asking for help with their student loans, there is a big chance that it is about being a co-signer for a loan.
Both federal student loans and private student loans are able to accommodate parents helping out their children by signing-off a loan. But this is not just your signature and credit score on the line. You need to also think about the repayments on these loans when the time comes and for private loans,, this is sooner rather than later.
Federal student loans have more flexibility when it comes to repayment of their Direct Plus loans which are the only kind of federal loan parents can take out for their children. Private loans are stricter with repayment on the college debt. There are even reports where the student already died but the private loan is still being collected.
It will stay with you if you borrow the money for your child
If your child takes out a private loan under their name, they will be responsible in repaying that account. They are also able take out Direct Plus student loan under their name. The idea is that whoever takes out the student loan, they will be the one responsible in repaying that loan. But this is where federal and private loans differ.
For federal student loans, if parents take out a Direct Plus loan for their children, it will become their responsibility until the loan is paid off. But for private student loans, the lenders offer what they call a co-signer release on the college debt. The idea is to relieve the parent of the loan after some requirements are met. This is usually after a few full and on time payments are made on the account.
Federal student loans usually comes with a forgiveness program
This is one advantage of taking out a federal student loan over privately funded student loan. Public Service Loan Forgiveness Program allows a borrower to be forgiven of their college debt after a years of payment when they take up full time jobs in the public sector as shared by ED.gov. There also forgiveness programs for the military and even the national guard.
There are also repayment plans under the federal student loans that provides forgiveness on the payments after fulfilling the maximum repayment time frame. The Pay As You Earn Repayment Plan forgives the balance of the loan after 20 years. And the Income-Contingent Repayment Plan and Income-Based Repayment Plan or IBR forgives balances of college debt after 25 years of repayment.
Target a no debt college
This is quite hard and challenging to pull off but ultimately the most rewarding for the student. This takes a lot of preparation before the student even steps on to college. There are some tax-advantaged investment instruments available to be able to save up for a college fund to cover the cost of attendance in college.
It is also possible to look for free money that can be used to pay for expenses and stay away from college debt. Scholarships and grants can be part of the financial aid package but there can be other institutions or agencies that offer financial assistance to deserving students. It just takes a dedicated time to research these institutions. Forbes.com also shares a mobile app that helps you look for scholarships for college.
Lowering down the amount of college loans while in-school
A student can also make an effort to lower down the amount that they have to repay for college debt even while they are still in school. Here are a few things they can do to hopefully face a manageable student loan to be repaid.
- Know how much you need to borrow. It is best to know how much you actually need in college to manage your borrowings. There might be some extra funds from your parents that you can use to lower down the amount of student loan that you have to take out. Overborrowing can give you refund checks that you can use for other school expenses but this is also a temptation in the hands of young people who cannot grasp yet the effects of student loans in their future.
- Get a part time job to pay for miscellaneous expenses. Getting a part time job allows the students to offset some expenses while still in college. It can be food, transportation and even books and supplies. More than the funds, this gives the the student some valuable experience especially if the job is the same industry where their major will lead them after graduation. This makes job hunting a little bit easier compared to looking for a job without any prior experience.
- Make in-school interest payments. This will help the student make payments on the original capital amount especially for unsubsidized student loans. The reason for this is that the interest payment on unsubsidized student loans will accrue over time,if not paid. The total amount will then be added to the original amount where interest will be paid increasing the capital amount and essentially the monthly payment as well.
College debt has been attached to college education because of increasing cost of higher education. But there are ways to address them starting with understanding how the loan payments work.