You’re about to start college and you qualified for a loan. Great job! You can now focus on studying the career you want and hoping that you can repay later.
Wait. Don’t you have a repayment plan? At least you have years to figure it out. Lenders don’t ask for their money back until six months after you graduate.
I don’t know what you think of this, but there are too many factors that come into play. If you wait until you graduate to get a job and start generating income, it may take you longer than you think.
And while you’re looking for solutions, you keep accumulating interest and late fees. Student loans aren’t cheap, so the debt may grow faster than you can earn money.
It’s obvious you shouldn’t wait to repay your loan. Ideally, you’d start working on it today. But how are you going to do that when you can barely keep up with your semester exams?
Many strategies can help you get more productive without having to burn the midnight oil. But the Government isn’t stupid enough to charge that much to a low-income group. That’s why they will help you reduce the loan amount if you can prove enough financial need.
Let’s see what that means.
Subsidized & Unsubsidized Loans
You have good reasons to start repaying ASAP. How early you pay back may mean thousands of dollars which you save on interest. When you borrow money without a plan, student loans can become a big trap.
If you haven’t started college yet, chances are your monthly income is less than average. You can use that condition to your advantage and get a subsidized loan.
That means you can use that money today and pay the principal back six months after graduation. AND the Education Department will pay for all the interest accrued while you study (so you don’t have to).
Although it’s not a lot, it could get you a 10% discount on the loan.
To apply for subsidized loans, you must be able to prove that you have a bigger financial need.
- Do you live by yourself, working part-time to pay the bills? You can apply.
- Does your family have many members but belong to a low-income bracket? You should apply.
- Do you have too little margin after calculating your income and tuition costs? Send a student letter and you might get approved.
Why pay unfair amounts if you can avoid it?
Subsidized loans are often limited, so only the students with the biggest need will get them. That leaves the rest with a second choice: unsubsidized loans.
The terms are the same, except that you’re responsible for paying the interest accrued while you’re studying.
That can be a good thing since it trains you to generate income from the earliest years. But if you choose not to pay, it could mean extra thousands of dollars in debt.
The good news is, you don’t need to pay it by the end of the month. You pay anytime you want. It only compounds with your principal six months after graduation.
Not only is it more expensive than subsidized loans. If you don’t pay by that time, you’ll be paying interest for your interest.
Delay it even more, and you might even spend 5+ years with this burden.
Getting money isn’t the problem. Getting money without falling for debt IS, especially with all those fraudulent loans out there.
Which one is better?
Subsidized loans save you more money. But not everyone qualifies, and those who do already have a tough financial situation.
Even with unsubsidized loans, you can delay the accrued interest until the very last month. And if you earned enough to pay 100% of the loan, it certainly won’t be hard to earn 5-10% more.
So subsidized student loans are slightly better. Yet, the best way to go to college is to have enough money not to borrow anything. Do it if you can; it’s cheaper and relieving.
If you do get a loan but find yourself in trouble paying it back, first make sure you don’t fall for student loan recovery scams.