When it comes to student loans nothing is straight forward, which is why it’s important to stay informed and fully understand the small print.
Student loans come with a lot of work, a lot of paperwork, and a lot of fine print. There are many things that people aren’t aware of until a mistake has already been made and it’s too late to fix it. With that in mind, here is a basic list of things you might not know about your student loans.
1. Bankruptcy will not erase your student loans.
Once you have committed to borrowing funds, you will be paying them back in full. The only exceptions to this rule is loan forgiveness, which comes with a strict list of stipulations and requirements, including working for a non-profit government facility, and death. These are hard times financially for a lot of Americans, but unfortunately not even bankruptcy will get you a free pass on your loans. Make sure you have a plan in place to pay them off, and stick to it as much as you are able.
2. Interest consolidation can catch you off guard.
This one certainly took me by surprise. I woke up one day, logged into my student loan account online, and saw that my principle balance had increased by over $100 overnight. An email arrived shortly after announcing the previously unexpected interest consolidation. My student loan provider took the interest that had accrued and consolidated it into my balance, thereby increasing the amount of interest that could further accrue. Luckily I was able to keep paying my loans down quickly and it wasn’t too much of a setback, but it certainly was a shock.
3. Subsidized vs. Unsubsidized Loans can make all the difference.
When you hear “grace period”, it sounds amazing. You get six months interest free to figure out your debt payoff plan? But there’s a bit of a catch to that. Federal loans will come as either subsidized or unsubsidized loans. Subsidized loans are offered when there has been proof of financial need. While you are enrolled in school at least half time, the government will pay the interest on the loan until you either graduate or leave school, followed by a six month grace period. Unsubsidized loans on the other hand, do not require proof of financial need, but you are responsible for paying interest, even while still in school. If you go into deferment, the same conditions apply. Interest can build up quickly, so be aware of how your loans operate. Private student loans also accrue interest during the grace period.
4. Tax and wage deductions can be applied if you aren’t paying on time.
There are consequences for failing to make consistent on-time payments. Your wages can be garnished, and your tax return can be withheld and rerouted for repayment of your loans if you are behind on payments. It can also have negative long term effects on your credit score, so be sure you are on top of your payments as often as possible, and in touch with your loan provider when you are having trouble. Communication can save you a lot of trouble in the long run.
5. If your parents sign the loan, they are responsible for the costs.
Often it’s difficult to take out loans for school simply because many students are too young. At 18, there is usually little to no viable credit, which limits or eliminates options. Often, parents have to sign or cosign loans for their children. When parents sign the papers, they are held responsible, often under terms of collateral, such as losing their house or other assets if payments aren’t made. Many people aren’t aware of this, and often make irresponsible spending choices because of it rather than consistent payments on their loans. Don’t put your parents in a difficult position. Know about your loans, your payment schedule, and your budget plan and stick to it!
6. It’s not as scary as it sounds.
A lot of big words and scary paperwork comes with student loans. Pay attention and ask questions when you have them. Your parents, loan providers, and even helpful bloggers on the internet (like me) are happy to answer your questions. You’ll feel much better and less stressed once you take the time to learn about and understand your loan’s terms and conditions. It’s all going to be OK!
About the author
Trinya’s passion for helping others understand student loans started when she began learning all she could to fill in what she didn’t know about her own loans. She enjoys speaking at local schools about the cost of college and assisting friends with their finances. In her free time, Trinya also enjoys reading, writing, and playing music.