Interest In Student Loans

8 min read

Interest Rates Rising – Is Your College Debt Affecting You?

Many students are finding themselves trapped in student loans due to an abundance of debt they accumulated while attending college. Nowadays, many schools are offering extremely expensive tuition rates that leave students with no choice but to take out huge sums of money in order to pay their school bills. It’s not uncommon for schools to charge $50,000 or even $100,000 per year! While these astronomical amounts might be fair to some degree, it certainly doesn’t help alleviate the financial burden students face after graduation.

The majority of people who incur massive debt tend to do so because they want to pursue career paths that require substantial education and training. If you’re dreaming about becoming a lawyer, teacher, accountant, doctor or dentist, then going to school in order to obtain your degree could be worth your investment. But if you’re looking to follow a field without much of a prerequisite, you may find yourself stuck paying off massive fees for years to come.

Student Loan Defaults are skyrocketing

According to data released by the Federal Reserve Bank of New York, nearly half a million Americans defaulted on their federal student loan payments in 2016. This number is up 18% from 2015 and indicates that the issue of student loan defaults is only getting worse. As of June 2017, 12.9% of all outstanding federal student loans were considered delinquent. And because of this, borrowers should definitely consider making extra payments each month in order to avoid default.

Are Student Loans Affordable?

While some major credit card companies have recently raised interest rates, student loans continue to remain at historically low levels. According to the U.S. Department of Education, the average interest rate on Stafford student loans currently hovers around 4%. On top of this, you’ll also receive grace period extensions that allow you to make additional payments without incurring any late fees.

How Does A Student Loan Work?

Student loans work similarly to any other type of loan. After you’ve obtained them, you’ll need to pay back your monthly installments. However, unlike mortgages, you won’t be responsible for paying your student loans until you graduate. Most banks will let you borrow between $500 and $35,000 per year. Once your loans hit repayment status, your total amount that you owe will be added to your balance. At this point, you’ll need to begin repaying your loans. The exact payment amount will vary depending on your current income level, but it’s estimated that graduates earn an average salary of just over $40k per year.

How Do I Avoid Defaulting On My Student Loans?

If you know you won’t be able to afford repayments, it’s best to contact your lender immediately and ask for an extended payment plan. You can also contact the National Consumer Law Center (NCLC) and inquire about filing a complaint. As long as you don’t fall behind on your student loan payments, you won’t have to worry about defaulting on your loans. Instead, your bank will simply report you as having missed a payment.

Can Student Loans Be Consolidated?

This question is often asked by those who are currently struggling to repay their student loans. Unfortunately, consolidation cannot solve all of your problems. Even if you manage to get rid of all your individual loans, you still won’t be left with enough money to cover the cost of your education, plus living expenses. Unless you manage to save a significant amount of money or receive scholarships, consolidating won’t be able to provide you with what you need.

Where Can I Find Out More Information About Student Loans?

Interest In Student Loans

Student loan debt is not going away any time soon. According to data released by the U.S. Department of Education, average graduating students have about $30,000 worth of student loans upon graduation. This number jumps to over $40,000 if we consider private education loans. All told, Americans owe roughly $1.48 trillion dollars in student loan debt. A recent Gallup poll shows that nearly 70 percent of people feel their current level of student loan debt is “unaffordable”.

Despite its size, student loan debt may not seem too bad compared to some of the other debts that many Americans carry. However, a single $30,000 dollar loan could take years to pay off. And unlike credit cards, medical bills, or even car payments, these loans cannot be paid back through bankruptcy proceedings. On top of that, interest rates for student loans remain at historically high levels. In fact, the average rate on federal Direct Stafford Loan was 6.21% last year, according to the Federal Reserve Bank of New York. That means that if you took out a $20,000 loan at 6.21%, you would end up paying $1357 per month for 10 years at a minimum. If you stretched it over 20 years, that monthly payment would jump to almost $1600.

The situation with private educational loans looks somewhat similar. Private student loans tend to have higher interest rates than their federal counterparts, but they do offer certain protections. You might not have access to the same repayment options as federal loans, however the Consumer Financial Protection Bureau (CFPB) does offer guidance that can help borrowers navigate the confusing world of private loans. Most importantly, you should always seek advice from a qualified financial advisor before making a decision regarding personal finance.

On a broader scale, the rise of student loan debt has sparked a national conversation about how to reduce the cost of college. Many colleges have already begun charging tuition fees that cover the actual costs of attending school while maintaining reasonable profit margins. Unfortunately, this approach isn’t working. Tuition prices continue to climb, and the gap between what colleges charge and what universities actually spend on instruction continues to widen.

Fortunately, there are a few things that can be done to make student loans less burdensome and keep them manageable. First, you should avoid taking out additional loans unless absolutely necessary. While borrowing money makes sense in certain situations, it is often a good idea to wait until after you graduate before applying for new loans. Second, start planning early for post-college expenses. College is expensive, but once you get out, you’ll likely need to find ways to pay for housing, food, and basic necessities. By having a plan in place beforehand, you won’t have to worry about unexpected expenses coming up later on. Finally, don’t forget that there are various tools out there that can help you manage student loans successfully. These tools range from free apps to online accounts where you can track your debt and set automatic payments.

Interest In Student Loans

Interest Rate

The interest rate on student loans is currently at 4.45%, which is lower than average 10-year U.S. Treasury note rates (yield). If you’re looking to borrow money, you may consider using a fixed rate loan instead of an adjustable rate loan. Fixed rate loans are generally cheaper because they only adjust periodically, whereas adjustable rate loans adjust each month.

Paying Off Loan Early

If you have access to a Federal Family Education Loan or Perkins Loan, you can pay off any unpaid balance early. You should check with your lender about how much of a savings you would receive if you paid off early.

Extra Financial Aid

You might qualify for additional financial aid based on factors including income, family size, number of children, and state residency. Consider seeking out these types of extra financial aid before borrowing.

Repayment Plan

Payment plans allow students to spread payments over their lifetimes. Typically, you’ll make smaller monthly payments while still paying off the entire debt all at once. Repayment plans are often more expensive than traditional repayment options, though, and don’t always offer the same flexibility. Find out what works best for you.

Borrower Defense Provision

A borrower defense provision gives borrowers the right to dispute their federal student loan and have it discharged if the government fails to follow proper procedures. According to the Department of Education, borrowers who take advantage of the borrower defense provision are less likely to default on their loans.

Income Based Repayment

Income based repayment allows borrowers to pay back their loans more slowly based on their income level. Students with low incomes might not qualify for IBR, however.

Public Service Loan Forgiveness Program

This program provides forgiveness after 20 years of payment if you work in public service jobs. To apply, you’ll need to complete a Free Application for Federal Student Aid (FAFSA) and submit documentation showing proof of employment.

Interest In Student Loans

Interest rates have been increasing slowly over the past several years. However, they’re still much lower than what they were during the financial crisis.

The average student loan debt is currently $26,200. That’s significantly higher than the national average credit card debt.

On average, students graduate with student loans worth about $29,400.

A little more than half (52%) of the undergraduates who graduated last year had student loan debt.

Since 2007, the number of student borrowers has increased by nearly 15%.

Interest In Student Loans

Student Loan Interest Rate

Student loans have become a very popular way to finance your education. As of 2014, over $1 trillion worth of student loan debt has been accumulated by students during their academic careers. Many people enjoy taking out these kinds of loans since they provide them with the opportunity to further invest in themselves and get ahead financially.

However, many borrowers do not realize just how much interest these loans charge and they end up being stuck paying a lot more than expected. According to Business Insider, some private student loans can carry a rate as high as 25%. On the other hand, federal student loans only charge 8% interest. Thus, if a person uses a private lender instead of a federal loan, he or she could pay nearly four times as much in interest fees.

Why Do People Take Out Student Loans?

Many college graduates find themselves saddled with a substantial amount of student debt after graduating. There are two major reasons why people take out loans. First, the idea behind using a student loan is to help cover tuition costs while attending school. Second, many people use the money they receive to get an apartment or car and start saving money.

How Does Student Loan Interest Work?

As discussed earlier, student loan interest rates vary from lender to lender. However, generally speaking, lenders make money off of borrowing money and investing it. While the borrower may never see any return on his or her investment, the lender does. When someone takes out a loan, the lender makes money by charging the borrower interest.

The interest on a federal student loan is calculated based on the duration of the loan. If a borrower borrows $10,000 at 8%, he or she would pay back approximately $11,500 in total. Most often than not, the borrower pays a little bit extra per month than what’s advertised due to additional fees and charges.

If a student uses a private lender instead, they’re likely to pay even more than the federal government. Private student loans could cost anywhere between 9-15% APR depending on the company and type of loan applied for.

Is There Any Way To Lower My Student Loan Balance?

While most student loan providers offer several different payment options, there are no guarantees about how long it will take to pay off the loan. Furthermore, some of the methods offered may require making larger payments each month compared to others. Still, there are ways to reduce the amount of interest paid on your student loan balance.

One of the best ways to lower your interest is to apply for graduated repayment programs. These programs allow a student to make smaller monthly payments throughout the course of the loan’s lifetime. Graduated repayments also allow you to keep your loan balance low as opposed to having it increase overtime.

In addition, refinancing your loan can save you money. A good rule of thumb is to look for a program that provides a fixed rate rather than a variable rate. By doing this, you’ll avoid any potential increases in interest charges. You may also want to consider consolidating your various student loans into a single loan with a lower interest rate.

Can I Refinance My Federal Student Loan?

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