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Student loans tend to get a bad rap, especially since they’re often taken out without consideration of how much money will actually need to be paid back. But that doesn’t mean you shouldn’t take them out! If you have any amount of student loan debt, however, keep reading — we’ve got some tips to help you manage it.
First Things First: What Type of Loan Are You Taking?
You have two types of federal loans to choose from: subsidized and unsubsidized. Subsidized loans provide extra financial aid directly from the government, while unsubsidized loans require borrowers to pay interest at market rates. Borrowers who qualify for the federally-funded Federal Family Education Loan (FFEL) program generally receive larger loan amounts than those who don’t. There are several different FFEL programs, including Direct Loans, PLUS Loans, and Perkins Loans. In addition, some private lenders offer low-interest rate Stafford Loans and GradPLUS Loans to qualifying students. These loans generally carry lower interest rates than subsidized loans, although their eligibility requirements may be stricter.
What Does Your Monthly Payment Look Like?
After you know what type of loan you’re taking out, figure out how much you could expect to pay per month based on your monthly income. This way, if you find yourself defaulting on payments, you’ll know exactly how long you would have had to repay before hitting trouble. Most online calculators let you enter only a few pieces of information and output a rough estimate, but others will ask you to input additional details like your annual salary and total loan balance. After you find the right calculator, plug in how much you earn monthly and how much you borrowed along with your expected monthly payment. Use the following guidelines to compare loan options:
Subsidized loans carry lower interest rates than unsubsidized loans, but borrowers must pay off their loans by paying higher monthly payments. Unsubsidized loans do not carry an interest rate cap, and borrowers pay the full cost of their education plus interest. Therefore, subsidized loans are preferable if you anticipate needing additional funds beyond graduation.
A subsidized loan requires no repayment until the borrower is earning less than $50,000 annually. Once the borrower earns more than $50,000, they must start repaying their loan. Undergraduates with subsidized loans must begin repaying their loans after 12 months of employment, Graduate Students must begin repaying their loan after six months of employment, and Parental PLUS Loans must be repaid after five years of employment.
Because unsubsidized loans carry higher interest rates, they should be considered if you anticipate making above average incomes after college. To avoid defaulting on a non-repayable loan, graduates must make minimum payments on these loans. However, unlike subsidized loans, if borrowers miss payments on their unsubsidized loans they immediately become delinquent and face higher interest rates.
Paying back an unsubsidized loan early results in higher penalties and possible removal from the FFEL program.
Private lenders offering low-rate Stafford Loans may give priority to borrowers who apply early to the school where they plan to graduate.
Parents who borrow under the Parent Plus Loan Program may be able to defer payment for up to five years.
Your Repayment Schedule
Once you know how much you can afford to pay monthly, determine how many years it would take you to pay back your loan according to your schedule. Many online loan calculators automatically calculate this for you, but if yours does not, use the chart below to determine how long it will take you to pay off your loans depending on your current monthly salary. Keep in mind that this is just an approximation and not guaranteed to be accurate.
How Much Student Loans Can You Take Out?
Student loans are great. There’s no doubt about it. We owe student loans thanks to our current president who has taken out $100 million dollars worth of them himself. However, it’s not always good to borrow money. Before you sign away your future, make sure you know how much you can afford to borrow before signing any papers.
According to Bankrate.com, the average undergraduate borrower takes out roughly $28,000 in federal government backed loans. That’s nearly 2.5 times the national median household income! Luckily, only half of those borrowers have delinquency rates over 30%. So if you have some extra cash lying around after paying for rent, groceries, and tuition, it may be time to start looking at what you can use to pay down your debt.
There are two ways to do this—by refinancing or consolidation. If you want to look into refinancing, check out BankRate.com‘s guide on “Refinancing Your Student Loan.” If you want to consolidate your loans, check out this article on the Consumer Financial Protection Bureau website.
If you’re going to borrow money, keep in mind these things:
Only take out what you need and don’t go overboard.
Consolidate your loan if you get a bunch of different ones from various lenders.
Find a lender that charges reasonable interest rates. (Don’t count on getting a low rate from a school.)
Pay off your loan early.
The easiest way to pay off your loan is to refinance. This means borrowing from the same company that originally lent you money, and paying the new loan back in smaller amounts each month instead of just making one huge payment. If you refinance your loan, you’ll save thousands of dollars and get a lower interest rate than if you paid off your entire balance all at once. Another benefit of refinancing is that you won’t lose your grace period. You’ll still have the full six months to pay off your loan without missing a single monthly payment.
Another option is to consolidate your loan. When you consolidate your student loans, you combine all of your loans into one new loan, so you aren’t paying interest on more than one loan at a time. Usually, you will get a lower interest rate if you consolidate your loans, since they are now considered together. Remember, though, that you could end up paying more in fees, depending on how many private creditors you have.
How Much Student Loans Can You Take Out?
In 2018, about $92 billion was borrowed by students attending U.S. schools. That’s almost three times the amount that was borrowed by all households in 2017. And student loan debt has been increasing steadily over the last decade — from $25 billion in 2005 to $91 billion in 2018 and projected to reach around $150 billion by 2022. According to the Federal Reserve Bank of New York, the average college graduate now carries student loan debt of $35,500. But what does that mean for borrowers? How much student loans can you take out?
Student Loan Limits
The maximum number of federal education loans that any student may borrow is called their “loan limits.” These loan limits were established by Congress for each type of federal program. In general, they increase yearly based on inflation, according to the Education Department. At the beginning of 2019, the annual limit for Direct Subsidized Loans (the loans that go directly to students) was set at $31,000; the annual cap for Direct Unsubsidized PLUS Loans (which are used primarily by parents and guardians who co-sign for their children’s loans) was $56,500; and the annual cap for Parent PLUS Loans (used mainly for undergraduate tuition and fees) was $110,200.
Each borrower’s individual borrowing capacity is determined by several factors including age and income. As a general rule of thumb, borrowers under 30 years old can potentially borrow up to six times their annual discretionary income plus $10,000. Borrowers between the ages of 30 and 59 can borrow up to four times their annual discretionary income while those 60 and older can only borrow two times their annual discretionary income.
Borrowing caps are based on income rather than household size and whether a borrower lives in a rural or urban area. Also, some types of loans have higher limits than others. For example, the annual lending limit for Perkins Loans and Stafford Loans is $20,400, regardless of how many people live in the household. However, the annual limit for Pell Grants is $5,920 for each person living in the home.
Types of Loans
There are two categories of federally insured student loans: subsidized and unsubsidized. A subsidized loan is basically a loan that goes directly to the school. Parents, grandparents, siblings, or friends can co-sign for them if they’re eligible. An unsubsidized loan is one that isn’t guaranteed by the government. Therefore, unlike a subsidized loan, there is no guarantee that the lender won’t demand repayment. However, lenders generally charge lower interest rates on unsubsidized loans than they do on subsidized ones.
Other Types Of Loans Available
Loans aren’t the only way young adults can finance their postsecondary schooling. There are a variety of options available, including federal work study programs, private bank scholarships, and even home equity loans. Generally speaking, these tend to offer less generous terms than student loans since they don’t require repayment until after graduation.
How Much Student Loans Can You Take Out?
Student loans have become a major issue among millennials who need to pay off their debts but still want to go to college. What do student loan borrowers need to know about taking out federal loans? What does the government offer? How much money can I borrow? Is private education cheaper than public school? These questions and many others are answered below!
Federal Loans – Borrowing for your education is not only free (as long as you meet certain requirements), but it’s also backed by the U.S. Department of Education. When you apply for a federal loan, the lender, known as a “lending institution,” gives you a certain amount of money, based on your financial situation. Your lender may take some of your federal loan into consideration if you qualify. The maximum amount of money you can borrow is $31,000 per year, unless you are married and don’t file taxes separately. However, you should be aware that interest rates and monthly payments vary depending on the type of loan you get.
Private Loans – If you don’t qualify for a federal loan, you could opt for a private educational loan instead. A private lender will give you a loan with terms similar to a federal loan—that means you agree to make repayments over time. Unlike federal loans, however, private loans require a co-signer. In case you default on your loan, the lending institution can pursue your guarantor. This means they’ll pursue any assets your guarantor owns after you default.
Loan Limits – Before you start thinking about applying for a loan, remember that lenders set limits on how much money you can borrow. Lenders often use two different criteria to determine this limit. One is your income; the other is your assets, such as assets you own or money you receive from family members. Depending on where you live, your state may allow you to borrow up to three times your annual salary per year. Additionally, lenders may place restrictions on what kind of loans you can be approved for. For example, if you want to borrow up to four times your annual salary, you may be barred from borrowing more than twice your annual salary.
Repayment Terms – As mentioned before, repayment terms differ depending on your loan type. On federal loans, you must begin repaying your principal and interest right away—in full each month. Private loans usually have flexible payment schedules. If you miss a payment, the interest rate increases. You may be able to negotiate lower interest rates if you keep making payments on time.
Interest Rates – You probably won’t notice how high the interest rate is until you’re paying for the loan. For instance, interest rates for both federal and private loans depend on your credit history. According to a study by the Consumer Financial Protection Bureau, the average student loan borrower paid 6.9 percent interest last year. Another way to calculate the interest rate is to divide the total cost of the
How Much Student Loans Can You Take Out?
Student loans have been a staple of higher education since they first became popular back in the late 1970’s, and for many people, they are a lifeline when it comes to paying off their student debt. However, with interest rates at historic lows, how much student loan money can you take out? And what about those who want to refinance their student loans? Are there any perks to refinancing student loans? Find out here!
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