When you obtain a student loan, you are accepting money upfront in exchange for the ability to get a college education. Since most people cannot afford the 25,000 dollars or more that it costs to go to school every year, they get loans from a bank, or credit union. When repaying those loans, there are a few common mistakes that people tend to make, and if you can avoid these mistakes, you can save money on your payments.
The first mistake is either not consolidating your loans after you graduate, or consolidating them before you graduate. Consolidating your loans before you graduate is a mistake, because you have to start repaying those loans immediately. Not consolidating at all means you are making multiple payments on multiple loans. You are paying interest on those loans, and if you consolidate, you are paying interest on just one loan, which will reduce your monthly payment.
Another common mistake is to think that you can just declare bankruptcy, and your student loans will go away. They will not! Student loans are around forever, and it doesn’t matter what your financial situation is. You can work with your lender to make terms that are manageable, but you must pay your debt no matter what.
Some people insist on having a loan in their own name for when they start to pay the loans off. Having a co-signer is a great idea for college, and most lenders will require it. You can actually get a lower interest rate with a co-signer, and although it might be tricky trying to find one, you will benefit from it. The lower the interest rate, the lower the payment.
If you pay at least some of the interest on your loans while in school, you will have less to pay off when your loan comes due. The interest accumulates on the loans even if you defer to after you graduate. Paying off some of the interest while in school will make you less in debt when you graduate, and have to start repaying the loans. This makes your initial payments easier to swallow.
Reducing the interest on your loans will lower your bill when it comes due. There are several great ways to do this, or at least to reduce the amount of interest you will have to pay. Consolidate your loans, pay off as much interest as you can while in school, and make sure that you are making your payments when you graduate! You cannot run away from your loans, so your best bet is to make them as palatable as possible.