Understanding Debt: Student Loans

Attending college can be one of your greatest accomplishments. But it may not feel that way once you have to start repaying your loans. Student debt is a growing concern because of sheer size of the total amount outstanding and the stress it’s causing to those who owe it and feel like they will never be able to pay it back. It’s also keeping people from saving for goals such as a owning a home, or retirement. Understanding student loans is important and as with any debt, its best to minimize what you borrow.

Student loans are available from both the federal government and private lenders. It’s recommended to start with the federal lenders before turning to private sources because federal loans come with more generous repayment and forgiveness options compared with private loans. Student loans are considered unsecured debt (no collateral backing it up) and the interest rates will vary by the type of loan and the lender (government or private). They can be fixed or variable and most begin accruing interest as soon as the money is disbursed, though re-payment doesn’t start until after you’re scheduled to graduate.

When you’re finished with school, you may have multiple federal and private loans at different interest rates, with different terms. It’s common to wonder if you should consolidate and/or refinance them. Consolidation combines federal loans (and only federal loans) into a single loan, and can be done by applying with the federal government. You’ll receive a new consolidated rate that is a weighted average of your existing federal loans and a new term. Refinancing is done by a private lender and can combine either private loans, federal loans, or both. It’s most often done to get a lower interest rate and/or extend the length of the loan and therefore lower the monthly payments. Before making a final decision on refinancing, remember that federal loans may have some special features that you’ll lose if you refinance. 

Want to know more? Read our full article here.