I recently had the opportunity to work at one of the nation's leading student loan lenders/servicers at an Indianapolis office. I felt the things I learned were very important issues that any student at any college (like Ball State) should be aware of.
Many of you have student loans; it is not uncommon for the average student to graduate with $10,000 or more in student-loan debt.
The first thing you should know about your student loans is that the interest rate you have is variable for the common Stafford loan. It is based on the 90-day T-Bill, which means your rate is the lowest available from any lender almost all of the time. You will never get another loan so sweet as your student loans, financially speaking.
The next thing you should know is that many people pay off all their loans as soon as possible, but you should weigh your investments versus your loans. The interest rate you're getting is so good, it makes better sense to invest extra money or pay off those credit cards rather than sending large payments to your student-loan servicer.
Many of us, myself included, sought loans to supplement the funds that were initially offered. These loans are typically unsubsidized, where subsidized loans you qualify for.
Subsidized means the government pays your interest during periods that you are not making payments, like while you are in school or on a deferment. A deferment is an entitlement for all student-loan holders. It puts off your payments during a time of economic hardship or unemployment.
Unsubsidized loans accrue interest during this time, and on student loans, interest accrues daily. During one of these deferments periods, pay the interest on your unsubsidized loans if you can. Your loans will only get bigger if you don't.
Most importantly, never place your account on forbearance. This is a deferment not sponsored by the government, but your lender. No one will pay any of the interest, and it will all be capitalized at the end of the forbearance period, typically up to one year. If you have a $10,000 loan, and a 4-percent interest rate, then after a year, $400 will be capitalized into your account principle if you do not pay the interest during your forbearance. It's really better if you just send in that minimum monthly payment.
Also, the typical monthly payment is $50, so if you put forbearance on your account and don't pay the interest, you'll spend the next eight months paying off the accrued interest that was capitalized on your loan.
Don't take forbearance. Most borrowers are eligible for 36 months of deferment. Keep that in mind and use it wisely.
Finally, if you have extra money and you do not need it for living expenses, send it back to your lender/servicer to be applied or taken off of the principal balance. I thought "extra money" and bought myself a new computer, which I enjoy but didn't need. I would have rather had less debt.
Getting in debt in excess of $10,000, however manageable it might be, is something you'll have to budget into your expenses every month for at least the next five or ten years.
Be aware of what you're getting yourself into: Loan servicers are out to make money. Don't take forbearances; they only give them out so your principal will eventually be too big to handle. That's what they want. The guarantor who guaranteed your loans will have to pay them off at default, then the government will take legal action in an effort to collect the debt.
So don't be late; don't take forbearances, and if you really need help, get a deferment. Good luck, fellow Ball Staters.
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