Before I started at Student Loan Hero in September 2017, I had only dabbled in financial writing. At first, I was overwhelmed by loan types, interest rates, and a dictionary’s worth of terms. Now, many articles later, I’m more comfortable talking about these hard-to-grasp concepts and can give some solid money advice.
I’m sure many of you feel the way I did just a few months ago. And as someone who can sympathize with your confusion, I thought it might be helpful if I broke down some of the advice I’ve learned through my research and writing.
Here are the five most important lessons I’ve learned about affording college and student loans.
1. Look for free money first
About 44 million Americans have student loan debt, and the average amount for Class of 2017 graduates was $39,400. It might seem obvious, but one of the best ways to avoid becoming part of that statistic is to go after free money — scholarships and grants — to help pay for college.
Many students assume they have to be a valedictorian or a top athlete or face extreme financial hardship to qualify for such awards. But there’s plenty of money to go around.
Research local, state, and national organizations to see what types of scholarships they provide and look into grants available in your community. You can even use online scholarship search tools that allow you to plug in your personal details and find options you might qualify for.
And don’t shy away from awards that are a few hundred dollars or you think you can’t get. Julia Isabel Martinez Rivera scored $50,000 in scholarships by cobbling together many smaller ones. Every dollar you get via grants and scholarships is money you don’t have to borrow in student loans.
2. Fill out the FAFSA
Many students think they don’t qualify for financial aid and therefore fail to fill out the Free Application for Federal Student Aid (FAFSA) or complete it incorrectly. But no matter your or your family’s financial situation, you could qualify for many types of aid, such as work-study, school-based grants, and federal student loans.
If you don’t receive enough free money through scholarships and grants to cover the cost of your education, federal student loans have many benefits over private student loans, including fixed rates and flexible repayment options. But you have to fill out the FAFSA to get them.
3. Be conservative with how much you borrow
Unfortunately, even with scholarships, grants, and federal loans, you might have a gap in coverage to pay for college. That’s when you might consider taking out private student loans.
Unlike federal student loans, private student loans are issued by independent financial institutions, such as banks. They set their own terms, including interest rates and eligibility criteria, so be sure to shop around to find the best option for you.
Once you’ve landed on a lender, don’t borrow more than you can afford. Remember, you have to pay back every dollar you borrow with interest. For example, if you borrow $35,000 at a 6.80% interest rate and are making payments of $350 a month, you’ll end up paying over $51,000 by the end of your repayment period.
So, you want to limit the amount you borrow. But how do you know how much that is? A good rule of thumb is that you shouldn’t borrow more than you expect to make in your first year out of school. Research how much your future career pays entry-level employees and limit your debt accordingly. If you need to borrow more, consider attending a cheaper college.
4. Consider your refinancing options
If you’ve already borrowed money for college, look into refinancing your student loans. This process involves taking out a new loan to replace your existing loans, streamlining multiple monthly payments into one.
But you want to keep an eye out for one thing: interest rates. The new loan you take out should have a lower interest rate than your current loans. That’ll reduce how much you pay in interest each month and over the life of the loan.
For example, let’s say you have a $35,000 loan with a 6.00% interest rate on a 10-year repayment plan and you refinance it to a 3.00% interest rate. You’ll save over $6,000 in interest and lower your monthly payments from $389 to $338 a month. Who wouldn’t want to save that kind of money?
Take your time and research lenders to ensure you’re getting the lowest rate possible. And remember that if you refinance your federal student loans with a private lender, you’ll forfeit many federal protections, including access to repayment and forgiveness options.
5. Take on a side hustle
Sure, you can be diligent about applying for scholarships and grants and conservative with how much you borrow in student loans. But there’s always room to make a little more money. With the sharing economy booming, it’s easier than ever to take on a side hustle, whether you’re in college or in the workforce.
I’ve interviewed numerous people who shared success stories of getting out of debt or becoming a millionaire by age 30, and almost all of them had at least one side gig. Full-time lawyer Kevin Han, for example, made over $30,000 in two years doing Postmates, DoorDash, Uber Eats, Caviar, Tapingo, TaskRabbit, and Instacart, to name a few.
Money earned from a side hustle can go toward your student loan payments, college costs, living expenses, or savings. The point is that taking on a side hustle for even a few hours a week means extra cash in your pocket.
Don’t try to understand every financial topic
Even with a few months of experience under my belt, I’m still learning about personal finance. After all, there’s a reason finance is a career path.
Hopefully, the basic advice above provides some guidance. But try not to get wrapped up in understanding it all. Pinpoint the money questions you have and seek out resources to find answers. It’s important to be involved in your finances so you don’t end up with a mountain of debt and stress.
Need a student loan?Here are our top student loan lenders of 2018!
|1 Important Disclosures for CollegeAve.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or Nationwide Bank, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Information advertised valid as of 11/1/2018. Variable interest rates may increase after consummation.
2 Important Disclosures for Discover.
3 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB). Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. Loan products may not be available in certain jurisdictions, and certain restrictions, limitations; and terms and conditions may apply. Ascent is a federally registered trademark of Turnstile Capital Management (TCM) and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for PNC.
PNC Bank is one of the nation’s largest education loan providers. For over 40 years, PNC has been committed to helping students and their families make possible the adventure of college.
6 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
SunTrust Bank, Member FDIC. ©2018 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
7 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
8 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
9 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|3.94% – 12.78%1||Undergraduate, Graduate, and Parents|
|4.06% – 13.06%3||Undergraduate and Graduate|
|4.34% – 12.99%2||Undergraduate and Graduate|
|4.37% – 11.23%*,4||Undergraduate and Graduate|
|5.03% – 11.23%5||Undergraduate and Graduate|
|4.12% – 13.13%6||Undergraduate and Graduate|
|5.62% – 10.01%7||Undergraduate and Graduate|
|3.93% – 9.81%8||Undergraduate, Graduate, and Parents|
|4.26% – 12.13%9||Undergraduate, Graduate, and Parents|