When you get your acceptance letter from College, the next question on your mind is how you plan to pay for it. My answer was simple, borrow the money. I would say this is true for most, but the goal would be to borrow as little as possible! Unfortunately, I did not apply for any grants or scholarships, so tuition was FULL PRICE.
1. Apply for Grants and Student Loans
Looking back this is one thing I absolutely wish I did! Grants and scholarships are essentially “free” money based on your academics, athletic abilities, heritage, heck you can even get one for being left handed! Applying for grants and scholarships likely would have resulted less borrowed, and thus less owed!
2. How hard it is to get approved for larger loans
Out of college, most students aren’t thinking about loans and even less of those students know anything about the details how a loan works. I got the concept, someone loans you money, you spend that money, and in return you repay them plus a little extra since it takes you forever to pay it back…
I tried several banks to get approved by myself, but was turned down from EVERY. SINGLE. ONE. Looking back it makes sense, I was just out of high school, didn’t have a phone bill, car payment, or credit card that I regularly made payments to. Having had some recurring payments would have built up my credit, but I still doubt the banks would have approved me to borrow $75,000.
So my mom and I applied with FAFSA and got approved for a Parent Plus Student Loan. this means my mom was listed as the borrower, not me.
In total my student loan was comprised of 4 loans:
- Loan 1:Parent Plus Fedloan for Year 1 Tuition ($25,000)
- Loan 2: Parent Plus Fedloan for Year 2 Tuition ($25,000)
- Loan 3: Parent Plus Fedloan for Summer School Tuition ($8,000)
- Loan 4: Great Lakes Personal Loan for books/housing ($15,000)
3. Repayment Terms
Again with the loan being done in my mom’s name + never having bills prior, this wasn’t exactly the first thing on my mind. However, in hindsight, I wish I was more aware of when the student loan would go in to repayment and how much the monthly payment would be. Really just to prepare myself, versus being shocked when the first bill came.
4. How Student Loan Interest Accumulates
All of my student loans through Fedloan went in to repayment with a 7.9% interest rate. OK, no problem right, yes it’s high, but hey it could be higher. What I didn’t realize was the date in which the interest started to accrue. Most would think interest went hand in hand with repayment… WRONG. Interest starts to accrue when the loan is dispersed. So when Fedloan sent the money to my college to pay for tuition, I started to accrue interest on those loans.
I wish I had known this and started to pay or at least set aside, the expected interest while I was in school. That way when I graduated, my loan would be the same amount what was dispersed, rather than $75,000 + 2 years of accrued interest at a 7.9%.
5. Tips on How to pay your Student Loan Off Faster
When my loan first went in to repayment, I would just make one lump sum payment to both FedLoan and Great Lakes, and the system would decide how to divvy up the payment.
I thought I was making great progress, I focused on my Great Lakes loan first and kept paying a single minimum to Fedloan. Paid off Great Lakes (Check). Now time to put all of that “extra” money towards my Fedloan payment. For almost 3 years, I just paid one single payment and let Fedloan decide which loan to apply it to… what I didn’t realize is how drawn out the process becomes….
I soon learned that you could specify an amount per loan. WHAAA?!!! So what does this mean? Basically you can specify how much of your total payment is applied to each student loan. For example, I had 3 loans that made up my Fedloan, 2 larger and 1 smaller. Every month, Fedloan would basically split the single payment in favor of the two larger loans and put a few dollars over the interest to the smaller. So the smaller loan was just continuing to accrue unnecessary interest.
When I started specifying payments for each individual loan, I focused on the small loan first. I would pay the accrued interest on the larger loans and the remaining to the smaller
Ex. $500 single payment
- Loan 1: Interest accrued: $75
- Loan 2: Interest Accrued: $78
- Loan 3: Remaining $347 ($500-$75-$78 = $347)
Focusing a majority of your payment on one loan starts to cut down on the principle and allows you to pay off each loan much faster, plus you accrue less interest!
In short, I wish I knew a lot of things prior to my student loan going in to repayment, the best thing you can do for yourself is research, research, research and get educated on the student loan process. And if you are like me, finding things out along the way, I hope this blog helps you to make smart decisions towards paying off your student loan faster!
Resources for you
Below are a few great links to help you get up to speed with grants, Scholarships, and student loan details: