When Josh Waldrum was a sophomore in college, he dreamed of studying abroad in Europe. He found programs through his school that would allow him to study in Italy, but paying for the semester abroad was harder than he expected.
“I brought it up to my parents, and they wouldn’t finance this extra expense,” he says.
Instead, Josh resorted to high-interest private loans. Although the debt allowed him to experience Sicily, the loan balance ballooned over time. Responsible for the payments himself, it took Josh five years to pay it off.
“Making payments every month was really hard,” Josh says.
Before taking out study abroad loans like Josh did, make sure you understand what those loans entail. They can differ dramatically from federal loans, so you need to come up with a plan to repay them quickly.
The high cost of studying abroad
Over 300,000 students study abroad each year, according to a report from NAFSA. Although it can be an amazing learning opportunity, it comes with a high cost. Studying abroad for just one semester can cost $20,000 or more, depending on your school and location.
If you can’t afford to pay for it in cash, you likely will need to turn to student loans — but your financing options might be limited. For example, some study abroad programs that are just a few weeks long aren’t eligible for federal aid. Plus, there often are additional costs that come with living in a new country, such as airfare, lodging, and transportation.
If you don’t qualify for federal aid to pay for studying abroad, private student loans might be your only option.
“The more traditional financial aid was hard to come by for studying abroad,” says Josh. “I had to apply for a loan through an alternative lender that specifically worked with students who wanted to study overseas.”
What to consider before taking out a loan
When you decide to go overseas, it’s easy to get excited about thoughts of seeing Paris or Milan. Although that’s natural, the excitement could lead you to overlook important details.
“The process to apply for study abroad loans was super easy,” says Josh. “But I didn’t pay attention to details like the interest rate.”
Making that mistake can cost you. In Josh’s case, his loan balance grew from $8,000 to nearly $11,000, thanks to a 6.60% rate. Since they were private loans, interest started to accrue while he was still in school. And because he deferred his payments, the balance continued to grow well after his graduation date.
To avoid that situation yourself, consider the following factors before taking out a loan:
- Interest rate: Know the interest rate and whether it’s variable or fixed. If the rate is high, you could end up paying much more on the loan.
- Payment due date: With federal loans, you usually have months after graduation before you have to start making payments. Private loans might not offer the same grace period. In fact, some could require you to make payments right away, even if you’re still in school.
- Repayment plans: Private loans aren’t eligible for federal perks like Public Service Loan Forgiveness (PSLF) or income-driven repayment (IDR) plans. However, some lenders will allow you to temporarily pause payments if you’re in financial trouble. Check the lender’s policies ahead of time so you know your options.
- Term: Many federal student loans have a 10-year repayment term, but private loans can be much different. Some have repayment periods as short as five years, which means you’ll have a higher monthly payment. That can make it difficult to stay current on your debt when you’re just starting out.
How to repay study abroad loans
For the first four years after graduation, Josh paid the bare minimum on his loans. However, when he married his wife — whom he met while studying abroad — they consolidated their finances and decided to attack their debt.
“We started a list of our debt and prioritized them,” he says. “We thought the study abroad loan would be the easiest to tackle first. We focused all of our extra money toward that one.”
Josh allocated the money from every bonus, raise, or windfall directly to his loan. After one year of laser-focused repayment, Josh paid off his loan in full.
Dealing with high-interest loans can be intimidating, but there are four options to help you repay them.
1. Refinance private loans
If your interest rate or monthly payment is too high, you can refinance your loan and get a new rate or a lower monthly payment.
Under this option, you apply for a new private loan from a different company. Your new loan is used to pay off your old debt and comes with completely different terms. Securing a lower interest rate or smaller monthly payment can help you save money, pay the debt off sooner, or get more breathing room in your budget.
2. Set up a payment plan
If you can’t afford your payments, contact your lender right away. While private loans don’t have access to federal benefits like forgiveness programs or IDR plans, some lenders do offer options for those struggling to make ends meet.
You might be able to temporarily put payments on hold. Or, you could be eligible for interest-only payments for a set period while you get back on your feet.
3. Check out repayment assistance programs
Although your private loan isn’t eligible for PSLF, you can find other repayment assistance programs. Many of them provide financial help with private loans as well as federal ones. You could qualify for repayment assistance based on your occupation and location.
4. Pick up a side hustle
If you’re short on cash or want to pay off your debt sooner, increasing your income is key. If getting a raise isn’t an option, launching a side hustle can get you the money you need. You can turn your interests and talents into a source of income.
You could do anything from walking dogs to delivering packages. Side hustles are usually flexible, so you can work when you want. Your extra earnings can make a significant dent in your loan balance.
Managing your private student debt
While studying abroad can be expensive, Josh says it’s absolutely worth it.
“Obviously, try to take out the least amount as you possibly can,” he says. “Study abroad loans make it easy to take out too much. But that being said, I wouldn’t have changed anything. Do whatever you can to get the [study abroad] experience — it can be life-changing.”
When repaying your study abroad loans, remember to research all of your options. If you do some digging and get creative, you can enjoy the rewards of studying in a new country without going broke.
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