Student Loans and College Debt

What do I need to know about student loans and paying them back?

There are all kinds of loans. Some lenders require that you start paying them back immediately. Others won’t send you a bill until almost a year after you graduate. When looking at a possible loan, ask about two things:

The “interest rate.” This determines the amount of money you have to pay back in addition to the amount you borrowed. You want this number to be as low as possible. Government-backed loans offer the lowest interest rates.

The “repayment terms.” This is how soon you have to begin to make payments on the loan, how long you have to repay the loan and how much you will need to pay each month. Government-backed loans also allow you to reduce your payments or stop paying for a little while, if needed. And the government may be able to reduce your debt if you go into public service or qualify for debt forgiveness in some other way.

How much money can I borrow in federal student loans?

The amount available in the government’s subsidized loan programs changes from year to year. Take out these loans first. If you need more money, you can usually get what you need through unsubsidized loans. But be careful. Borrow only what you need.

How much is it okay to borrow?

This depends on a number of things. As a first step, look at the financial aid letter from the college you like the most. Will you need to borrow money to get through your first year? What about the remaining years? What kinds of loans are available to you? And what will be the total cost over four years?

Once you have gathered this information, it’s best to look for a financial aid calculator to do the number crunching for you. Most college websites have these now. The website has a terrific calculator that allows you to enter the size of loan you’ll be repaying, the interest rate and other terms. One example: If you have a $29,000 debt (which is the national average) you will be expected to pay back about $310 per month for 10 years at the current 5 percent interest rate for government-backed loans.

Will you be able to afford that after you graduate? Be realistic. Think seriously about the kind of job you hope to get. How much do young workers earn in that field? Will you be able to make your loan payment along with your other expenses?

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