There are a lot of countries that offer educational loan programs for their students. This type of loan serves as a financial aid for students to have access to higher education. Student loans can either be government-sponsored or can be funded by banks, credit unions or nonprofit organizations.
Most students prefer the federal loan as it comes with lesser interest rate than private student loans. Also, federal student loans have more flexible installment terms and will provide you a longer grace period before you start paying. Thus, federal student loans are the second choice of most students after scholarships grants.
The Benefits of Student Loans
The United States is among the countries that support student loan programs. According to their statistics, there are 44.2 billion students who avail student loans, 98% of which are federal loans. Thus, it helped students to be capable enough of supporting their education.
Flexible Repayment Options
Student loans have more flexible and manageable terms and conditions compared to other types of loans. You are allowed not to pay yet until you finished school. Plus, you have a six-month grace before you actually start paying. Federal loans also allow deferment or postponement of payment for until three years.
Lower Interest Rates
Of course, student loans have lower interest rates than non-educational loans. Federal student loans offer an interest rate for as low as 4.29%, whereas private loans can go thrice. Moreover, you can also deduct the interest from your income if you already have work.
Establishes Good Credit
You can obtain student loan even without a credit. Also, student loans can help you establish or build up a good credit score and credit history.
Debt Relief System
Some student loans, especially the government-sponsored have debt relief system in which they will provide relief or forgive students from the burden of debt, in case of critical financial crisis.
The Rise of Student Debts
Despite the advantage of student loan programs, more and more students are burdened with debts. According to the statistics, Americans owe more than $1.45 trillion in student loan debts.
In 2012, over three-fourths of students who graduated from four-year colleges have student debts. This represents more than 1.3 million students graduating with debts.
With this condition, students have a hard time in achieving their life goals as it takes time for them to recuperate from their loan debts. According to National Debt Relief Association of Realtors, 61% of the student debtors find it difficult to contribute to their retirement accounts. In a recent study by Pew Research Center, only 27% of young college graduates with outstanding student loan debts state that they are living comfortably.
The rise of student debts is very alarming. This hinders them to move on to their other goals in life, including buying homes, starting families and getting married, among others.
How to Deal With Student Debts?
In order to recover from debts, students should set a clear goal to eliminate this burden and achieve a debt-free life. Here are some ways on how to pay off student loan debts faster:
Plan carefully during the grace period
After graduation, you are given a grace period before you will have to start paying. Use this period to plan carefully about your future steps. Start looking for a stable job that can provide you with a stable income. Also, use this opportunity to understand about your loans and your payment options.
Track your total debts
It is common for fresh graduates to forget about their loans. It is important that you are fully aware of your debts. You should order a free copy of your credit reports from credit bureaus so that you can use it to draft a plan of how to pay your debts.
Take extra work and earn more
One way to earn more is to take extra work. Forget about the traditional 40 hours of work. Instead, you can work beyond. Also, you can accept freelance jobs to have more sources of income to pay your debts.
Work for a company that offers aid
There are certain companies that offer relief aid for graduates with outstanding student loans. They offer yearly contributions to pay down student debts.
Restructure loan terms
You can also consider refinancing in which you can choose a new term length which can help you reduce the total cost of your loan. We advise that you select a shorter time to reduce the total cost of interest even more.
Practice budget management
Budgeting is crucial for any financial activities. It doesn’t mean that you are earning, you can do unlimited purchases. Always practice budget management so that you cannot miss your payment obligations. Allocate a certain amount for your loan.
Enroll for auto-debit
You can reduce your interest rates by signing up for automatic payments. Some loan services will reduce about 0.25% when you do auto-debit. Also, it prevents you from late payment charges.
Volunteer your time
There are certain organizations that offer student loan forgiveness or debt relief if you volunteer and dedicate your time to a service. Some of these organizations also pay for your student loan debts instead.
Take advantage of tax deductions
Do not forget to deduct your student loan interest. If you are earning under $60,000 annually, then you can reduce up to $2,500 of the loan interest you have paid in the last year from your taxes.
Consolidate your loans
You can also consolidate your loans. To do this, apply for multiple small loans. Combine them to pay for your student loan debts. By consolidating your loan, you can extend your payback period. However, you just have to be careful as this may lead you to paying more loans in the long term.
Forget about wants
The burden of debts keeps students from moving on to their next goal. In order for you to achieve other life stages, get rid of your debts. You have to prioritize first the settlement of your debts. Forget about your wants – luxuries, gadgets and other expensive stuff.
Lastly, be positive. It may be very frustrating to be drowned in debts after graduation, but do not lose hope. Just focus, and you’ll be debt free the soonest.