Federal student loans are less expensive than other types of borrowing, but loan fees and interest can mount up over time.
Federal loan interest rates for the 2022-23 academic year vary between 4.99% and 7.54%, depending on the loan program. You will also have to pay an upfront loan fee of 1.057% or 4.228%, which will be taken from your payout depending on the type of loan you receive.
If you have an average interest rate of 6% on a $39,487 amount, you will pay a total of $52,606 during the normal 10-year repayment period. Total interest rates may be significantly higher if you extend your term or enrol in an income-driven repayment plan.
How Repayment Works
Most student loans allow you to postpone payments as long as you continue to attend school at least half-time. When you graduate, quit school, or fall below half-time status, you normally receive a six-month grace period before beginning monthly payments.
Student loan servicers and lenders will amortise your loan balance over your fixed repayment term to calculate your monthly payment, and unless you have subsidised federal loans or make interest-only payments while in school, any interest that accrues during that time will be added to the balance.
If you have federal loans, you may be able to change your payback term to a longer period, a graduated repayment plan, or even an income-based repayment plan. Private lenders rarely provide such options, although refinancing existing loans may allow you to change your payback period.
What Happens If You Cannot Afford Your Student Loan Payments?
If you have federal student loans, any of the Education Department’s four income-based repayment plans may help you make your monthly payments more manageable. In addition, if you are experiencing financial troubles, you may be eligible for forbearance or deferral, which allows you to temporarily suspend payments.
If you have special student loans, your relief choices may be restricted and based on your lender. Income -based payment plans are rarely available, and while some lenders may provide a delay or patience, the conditions are often less favorable than those in federal loans.
Late payments on federal and private loans may result in penalties, and missing a payment for 30 days or more might harm your credit. If you stop paying entirely, your loans will fall into default—it normally takes around nine months of nonpayment with federal loans but considerably less with private loans—your balance will become due immediately, and you may be liable for collection fees.
How Student Loan Payments Can Impact Other Financial Goals
You may not have many financial obligations or long-term financial goals while in college, but once you start your career and have a consistent income, you may begin to consider building an emergency fund, purchasing a home, saving for retirement, and achieving other major financial milestones.
However, if you take out a large number of student loans, you may find it difficult to achieve other financial goals. In other situations, student loan payments can prevent you from achieving other goals, at least until your debts are completely paid.
Try to think further and evaluate many goals that you want to try after college, and understand how students can affect your success.
The Bottom Line
Although obtaining student loans is simple, it is important to consider the possible impact of student loans on your financial condition after graduation. Taking measures to pay the college costs through alternative means, such as scholarships, scholarships, part -time work and other options, can help you reduce your dependence on student loans and provide money in the long run.
Also, while you are still at school, start thinking about strategies to improve your credit history. Experian Go provides free resources, including access to FICO points and Experian credit report, to help you start your progress and follow it.