When you go to college, you probably aren’t thinking about how much you’ll owe when you finish.
Unfortunately, that lack of knowledge can result in an unpleasant surprise when it’s time to repay your debt. Many students put off life milestones after graduation, worried that they can’t afford to buy a home or start a family.
Some states, though, hope to change the trend by requiring schools to let students know how much they will owe when they finish. When faced with the stark numbers – including the estimated monthly payment – many students are apt to borrow less.
What some states are doing to help students understand debt
On July 1, Florida started requiring higher education institutions in the state to provide students with an annual report of how much they’ve borrowed so far. On top of that, schools are required to provide information on estimated monthly payments when students finish.
This law is similar to those in Indiana and Nebraska. These laws require colleges and universities to offer detailed student debt information to their students. Next summer, Washington will also implement these changes as part of a recently-passed law.
It’s not just states hoping to provide more information to college students either. Senator Chuck Grassley, D-Iowa, introduced a bill that would require detailed information in financial aid letters. These letters would include information about your estimated monthly payment under a 10-year repayment.
If this bill makes it through Congress and becomes law, financial aid letters would also come with a disclaimer. This would let students know that they aren’t required to accept the full amount of student loans offered.
Many students are uninformed when it comes to financial aid
Lawmakers want to require more information in student aid letters because many students are woefully uninformed about financial aid. This lack of awareness could be one reason we’re facing a potential student debt crisis.
In 2014, the Brookings Institution found that about 50 percent of first-year students “seriously underestimate” how much debt they have. Another economic paper from the University of Iowa and the Federal Reserve found that almost one in 10 students are off in their estimates by more than $10,000.
One of the biggest issues, though, is that many students aren’t even aware that their student loans are, in fact, loans. The Brookings Institution research indicated that 28 percent of students with federal loans insisted they didn’t have federal debt. Additionally, 14 percent of those with federal student loans said they didn’t have any student debt at all.
Increasing the transparency of financial aid letters, and clearly stating how much students owe, could result in less borrowing. Information released in 2015 and 2016 found a drop in federal borrowing by students who were aware of their estimated monthly payment upon completion.
How to figure out your estimated monthly payment
Don’t wait for your state to look out for you, or for Sen. Grassley’s bill to gain traction. Take charge and be prepared on your own. You need to educate yourself about the potential cost of graduating from college with student loan debt.
The first step is awareness. Realize that financial aid isn’t just about scholarships and grants. It also includes student loans. Pay attention to your letter and note the loan amount offered. Write it down to provide more impact for the number.
Next, use the amount offered for your first year of school as a potential guide for what you will receive in subsequent years. If you plan to borrow $10,000 during the first year, it is likely that you will borrow the same amount in the following three years. By the time you finish school, you will have close to $40,000 in debt.
Once you have an estimate of what you’ll owe when you graduate, use a student loan payment calculator. This will help you get an idea of what you will pay each month.
In the example above, if you borrow $40,000 at 4.45% and expect to pay it back in 10 years, your monthly payment will be $414.
That’s a pretty good chunk of change. If you struggle to find a job that pays you adequately, or that’s in your field, you might have some trouble paying off your student loans. You could easily feel like you need to put off saving for retirement, starting a family, or working toward a down payment on a home.
Educate yourself before graduation day
It all starts with educating yourself, so you’re prepared (and not surprised) come graduation day.
When evaluating your student loan options, consider whether or not you need the full amount offered to you. If you can borrow less, that can save you money down the road. And that will help you reach your other financial goals, as well.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.23% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 6.23%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|