By now you are all aware that effective July 1st, 2013 federal subsidized Stafford Student Loan rates, a widely utilized type of student loan, has increased from 3.4% to 6.8%. Like many of you, I was saddened by Congress’ failure to act.
With student loan debt now at more than $1 trillion, more than the nation’s combined credit card debt, and at a time when the average debt loan for a college student is about $30,000, these hikes will further weigh down this generation with mounds of debt and could certainly put higher education beyond reach for some.
“This is just another example of why we have to be more prudent with our own finances because the government does not always come through and when they don’t you still need to be prepared,” says Ryan Mack, President and CEO at Optimum Capital Management, LLC. “The government is not a financial planning tool. You are!”
The hike does not affect those who borrowed prior to July 1st so don’t panic, you will not see your payments double if you have already graduated. It only applies to all new federal subsidized loans. Although Congress still may come to a decision to correct this rate crisis in upcoming months, Mack says you can’t sit back waiting for the government. Regardless of what the rates are you have to have take the time out to research your options and map out your future.
Mack and I teamed up to create this list of ideas and resources to help you boost your student loan IQ and borrow smart:
Find Ways to Cut Cost:
You can accelerate your degree program by “testing out” of subjects and getting college credits for what you already know. The College-Level Examination Program (CLEP) test offers 33 exams in five subject areas, covering material taught in courses that you may generally take in your first two years of college. The 90-minute exams, which cost $80 each, are administered at 1,700 test centers and 2,900 college and universities.
Also, find out if your college or university offers their own test to let you skip certain classes or earn credits if you pass and if you can receive college credit for training you already have. You can also ask the campus registrar to find out what credits can be transferred if you take a class at a local community college. The cost per credit is often much cheaper than a four year college or university.
Check out this list of the Top Ten Tuition Free Colleges at Fastweb.com
Estimate Your College Cost Ahead of Time:
I’ve seen a lot of students take on more debt to attend a college or university because of its name only to major in a degree program that does not produce ROI. Mack says that students should consider attending a college or university that they can truly afford and supplement their education with experience.
“Start a business while you’re in college or a blog about your career and level of expertise. No matter what school you attend,” Mack says, “you must “create your own experience.”
Estimate your cost with this calculator from CNN Money
Borrow Only What You Need:
When you take out a loan, remember it’s not a gift. It must be paid back and with interest. Make sure you’re only borrowing enough money to pay for education related expenses–tuition, room and board, textbooks, etc. Do not use your money for recreation such as eating out or spring break. If you receive a refund check at the end of each semester consider paying back your student loans while you’re in school. It can help you save money in the long run and pay off your loan faster.
Do Your Consolidation Math:
“Explore your options before you consolidate,” says Mack. “Consolidation may mean a smaller payment but it can also elongate the repayment period and you may pay more in total interest.” Mack recommends that you evaluate your options by comparing the rate you’re currently paying to the new rate. Make sure that the new monthly loan amount is within your budget. And don’t be afraid to shop around for consolidation offers. Your school might recommend borrowing from a certain lender but you need to get the full terms of disclosure before making the commitment and ask why you are being referred to this lender.
Mack adds, “If you get good deal that allows you to drop your monthly payments from $800 to $200, for example, that does not mean that you should start paying $200 a month. Aim to pay more and pay it back sooner. Once you have an emergency fund in place it’s a good idea to accelerate your payments.”
For more tips on paying back your student loans check out how my friend paid back her school debt four years ahead of schedule.
Check out these student loan consolidation calculators:
Understand What Deferment Really Means:
“Just because a loan is deferred doesn’t mean that it is not accruing interest,” cautions Mack. “Banks love this because you elongate the time it takes to pay the bank back the loan and you’re paying more money on the loan that is not even going towards the principle.”
For Subsidized Stafford Loans, the interest that accrues on the loan during the deferment is paid by the federal government. For unsubsidized Stafford Loans, the interest that accrues during a deferment must be paid by the borrower during or after the deferment period. For all other types of loans you are responsible for paying the daily interest that accrues.
What do you think about the student loan hike? What’s your borrowing strategy?