Education Loans: Repayment and Your Options
If you continued your education after high school, then there’s a good chance you have loans to prove it. Most Americans who seek to further their education do so with the help of student loans. If you were lucky enough to have avoided the student loan journey, then this article isn’t for you, but I urge to read on anyway! If you do, you can impress all your friends with your knowledge and you might even use that knowledge to help someone else someday. And who doesn’t want that?
There are a couple of different ways that education loans are structured. Some are Subsidized and some are Unsubsidized. All education loans will accrue interest while you are in school, even though you won’t be making payments while in school. If a loan is subsidized, the federal government will pay the interest for you while you are in school, so when you graduate, the amount you owe is exactly the amount you borrowed. Now that’s a nice little graduation gift from Uncle Sam. If a loan is unsubsidized, upon graduation, you will owe the amount you borrowed plus the interest accrued on that loan while you were in school. In short, you want to get a subsidized loan, if you can.
Once you graduate and start paying back your education loans, there are a number of options you may want to explore, but we’ll go over two in this article. Once you have a job, most lenders will allow you to apply for an income based repayment option. This will adjust your monthly payment based on your income, usually an amount that equals 20 percent of your take home pay. If you get a raise, your monthly payments will shift as your income adjusts. One important thing to note is that the less you pay each month, the more you will pay in interest over the life of the loan, so it’s usually best to pay as much as you can each month, without crippling your budget, of course.
The second option you will want to be aware of has to with the type of employer you work for. If you graduate and happen to go to work for a non-profit, the government provides a Public Service Loan Forgiveness program. If you are enrolled in this program, the balance of your loan will be forgiven after 10 years, as long as you have worked all of those 10 years at non-profit companies/organizations. You can change companies, but every company you work for must be a non-profit to remain eligible. If you plan to work at a non-profit for the first decade of your career, it might make sense to utilize the income based repayment option so that you pay as little as possible each month, knowing that the balance will be forgiven after 10 years. Be sure to read the fine print before going this route to ensure the program will honor your forgiveness should the terms change over the next 10 years.
There are lots more nuances to education loans which we’ll cover later, so keep your eyes peeled for more exciting education loan related topics like deferment and forbearance! We know, you’re so excited you, you just can’t hide it.