Whether you have a college savings, are minimizing your education costs, or receive a scholarships and grants, taking out a student loan is a necessary step for most families.
Understanding the student loan process can be a daunting task โ especially if youโre the first child in your family to head to school. In this blog, we break down the various types of loans available and best practices to managing them responsibly.
Understand Your Loan Options
Federal vs private loans: Federal loans, commonly known as FAFSA, are education loans provided from the government. On the other hand, private loans are provided by banks. Thereโs no clear answer on which is best โ you must carefully review each loanโs terms to determine the best option for your needs.
Subsidized loans vs unsubsidized loans: Offered by the US Department of Education, subsidized and unsubsidized are available to full- and part-time students to help finance their education. The main difference between these two types of loans is interest. On subsidized loans, you arenโt charged interest while youโre enrolled in school. On the other hand, interest starts accumulating from the date of your first loan disbursement for unsubsidized loans.
Fixed vs variable rates: Fixed rates stay the same and provide the borrower with a predictable monthly payment. In turn, variable rates may go up or down due to the loanโs index performance. A lot can change within your college career โ from the economy to personal circumstances โ so choose wisely.
Minimize Your Loan Amount
Consider a part-time job: Balancing work and school can be tough, but if youโre able to swing it, part-time job can help alleviate the financial stress associated with college expenses. Tuition aside, having to now borrow โspending moneyโ in your loan will make a huge difference in the long run.
Enroll in auto-pay: Many financial institutions offer a small loan discount for enrolling in automatic payments, believe it or not. Just note that this is not an ideal option for someone with an unpredictable income. It may sound small, like 0.25%, but on a very large loan it can mean big savings.
Pay the interest: If you have the means to do so, paying the interest on your unsubsidized or private student loans while youโre in college can help keep your student loan debt at bay.
Responsibly Borrow & Strategize Your Repayment
Create a budget: This may seem like an obvious one, but staying organized and in control of your finances will really make all the difference. While tracking your spending and anticipating costs, create a pan to save a little each month to put towards your debt.
Consolidate your loans: By consolidating your loans, you combine all of your various student loans into a single bill. This is essentially taking out a loan to cover the total amount ofyouโre your loans, making it easier to manage with one monthly payment and one due date. Often, this extends your repayment term which results in a lower monthly payment.
Make larger payments when possible: Making lump-sum payments is an effective method to reduce the overall payoff time and see your principal balance drop. This will also bring down your accrued interest.
Ready to take control of your financial future? Penn Community Bank is here to help you every step of the way. Whether you’re opening your first account or seeking advice on managing your money, our financial experts are ready to assist. Get started and embark on your journey to financial independence. Let’s make smart money moves together and ensure a financially secure future!
