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While maxing out federal loans first before taking private loans is advisable, private loans are an affordable way to fund the remainder of your costs once you've exhausted your eligibility for Department of Education financing.
If you're one of the millions of undergraduates who borrow for school from a private lender, making smart plans to manage your loans can help you keep costs down so debt repayment isn't as big of a burden as a post-grad. Here are a few tips to help.
1. Compare private student loan rates
The lower your interest rate on your private student loan, the lower your monthly payment and total repayment cost will be. If you plan on taking out any new student loans, visit Credible to see a rates table that allows you to easily compare fixed and variable rates from several different private lenders. That will make it easy to see which lenders offer the most affordable loans.
You can also compare student loan refinance rates to see if you're able to lower the cost of your existing debt. Often, you can score a better rate after graduation when you have income coming in. This can make repayment much easier and more affordable.
Credible can help you explore loan options whether you're borrowing more to complete your program or aiming to refinance so repayment isn't such a challenge. Check out their resources today to help you take control of your educational debt.
2. Know your student loan balance
When you're focused on completing your academic program, it's easy to lose sight of all the borrowing you're doing (especially if you're taking out multiple different loans with different lenders). Unfortunately, you can quickly run up a huge balance if you aren't keeping your eye on the big picture.
To make sure that doesn't happen, always keep a running tally of what you're borrowing, what your interest rate is, and who your lenders are. You can use a simple spreadsheet to do this, but there are also apps that allow you to link your accounts. The apps also update in real-time.
As you monitor the amount you borrow, remember to take out loans only for the necessities since the bigger your loan balance, the more interest you pay, and the more difficult it will be to become debt-free after graduating.
3. Aim to cover interest costs while you're in school
Direct Subsidized Loans from the federal government offer subsidized interest while you're in school and during deferments. No other student loans provide this benefit. That means with other federal loans and with private student loans, your interest starts accruing from the time you borrow.
Most private lenders give you a choice of in-school repayment options, including making small flat monthly payments, covering interest only, or deferring payments altogether. Unfortunately, if you opt for small flat monthly payments or don't pay anything, interest will accrue the entire time you're completing your degree. You'll graduate with a much larger loan balance that's much costlier to pay back.
If you want to avoid growing your debt beyond the amount you borrow, aim to pay interest on your private loans while you're still in school. This could be a financial hardship, but it will save you a lot in the long run if you're able to make it happen.
4. Create a plan and start saving
You likely don't want to wait until you've graduated to begin thinking about how to tackle your student loan debt. Instead, keep tabs on how much your payments will be after graduation, start working on a budget that prioritizes paying them, and save as much money as you can during school towards making those payments. You can use an online student loan calculator to find out the costs of your debt so you'll know exactly what you're dealing with when making your financial plans.
By factoring in these costs before you even graduate and find work, you'll be ready to begin paying your lender as soon as possible after leaving school.