Planning Ahead for Your Career with Student Loans

Planning Ahead for Your Career with Student Loans

 

When it comes to student loans, many people often find it challenging to properly plan for their financial future, especially when it comes to repayment. Although loans are an excellent way to help get through school, many graduates fail to address the debt in a financially responsible way.

Whether it is the portfolio of various loans taken out during schooling or the long hours most end up working out of college, debt can often end up costing more than it necessarily has to. By learning how to financially manage your loans during schooling and after graduation, lowering the total amount owed due to accumulated interest should be achievable.

Avoid Using Forbearance to Delay Payments Although many graduates may find it challenging to make payments on a loan, especially directly after graduation, the interest accumulation during a forbearance period can drastically increase the amount that has to be paid over the course of the loan.

According to the Student Doctor Network, “Graduates who carry high levels of debt and experience tight liquidity during their residency, internship, job search or first year of employment may rely on forbearance to postpone their student loan payments.

Many borrowers believe forbearance is the only viable option to delay payments once their grace period ends. However, borrowers must recognize that while forbearance does suspend payments, it can be a costly option because loans continue to accrue interest.” For example, someone who has $165,000 dollars in debt may end up paying $1,000 dollars in interest a month during the forbearance period. Making payments directly after graduation is a good way to build credit as well, which won’t occur if forbearance is chosen.

Don’t Treat All Student Loan Debt Equally Most students will end up taking out student loans with multiple lenders. It can be a mistake to equally distribute payments across all of the loans in such a portfolio. This is because the interest rates on loans in such a portfolio tend to vary. Aim to pay back the loans with the higher interest rates first while only sending in the minimum necessary payment for loans that have a lower interest rate. Such a strategy is often referred to as a targeted repayment plan.

Lower interest rate loans should be placed into forbearance or extended while focusing on paying of higher interest rate loans first. Many students end up breaking the cap allocated by the government for its student loan program and are forced to take out loans from a private lender who typically charge higher interest rates. Paying off higher interest private lender loans first can often save a substantial amount of money on interest in the long-run.

Pay Special Attention to Tax Returns When filing a tax return, it is often possible to write off the majority or all of the interest accumulated during the tax year from student loans. If the amount that you must repay for your student loan is substantial compared to your yearly income, it is often possible to qualify for an income based repayment plan. The government will elect to pay for accumulated interest on your loan if your monthly payment isn’t able to cover it.

robbert whitticker

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