Home Blog Struggling With Student Loans? Here’s How You Can Get Out Unscathed

Struggling With Student Loans? Here’s How You Can Get Out Unscathed

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Student LoanThere is no doubt about it: going to college is a winning investment. Today’s graduates are earning more than twice as much as professionals with a high-school diploma, and enjoy an average ROI of nearly 300%.

However, taking out a student loan to afford college can affect your finances for over 20 years after you graduate. So, how can you reduce the financial burden of college and kick-start your high-earning career

Let’s start with the tips below. 

Consider Earning While You Are Learning

The average student debt has been consistently on the rise over the past years and, today, young graduates enter the workforce with an outstanding debt of just over $37,000. But, there is a lot that you can do to reduce this burden – even before creating it!

For example, if you have already found the right employer for your career progression, you might consider taking advantage of an internal employer-sponsored education program. What’s more, an increasing number of employers are now making available tuition reimbursement schemes and assistance – but only around 5% of eligible employees take advantage of them!

Alternatively, you might consider looking for a full or part-time job while attending college to balance out your finances and reduce the amount you need to borrow. 

Pro tip: choosing an online college or course might reduce the financial burden associated with education. And, thanks to today’s availability of online degrees and remote-learning courses, you can earn a degree while studying from home and at your own pace, thus reducing transportation and accommodation costs. 

Choose Your Student Loan Wisely

When it comes down to choosing a student loan, there are many options to consider. For example, FAFSA-sponsored need-based federal loans can help students access the essential funds needed to get through college – up to $5,500-$12,500 for undergraduates and $20,000 for graduates.

Alternatively, custom private student loans are subsidized by independent lenders and can cover all costs associated with college. These loans, which are tailored to each student’s needs and financial situation, take into account the current circumstances of the borrower, including credit score, debt-to-income (DTI) ratio, and the presence of a co-signer. 

Pro Tip – the two loans can be used in combination. For example, you could consider taking out a private loan to bridge the financial gap left by your FAFSA help. 

Refinance Your Old Student Loan

Even if you have found the perfect loan for your needs, your circumstances and financial situation can change. After college, you might need to readjust your student loan payments to reduce your DTI (such as if you are applying for a mortgage) or repay your loan faster. 

In this case, exploring some of the student loan refinancing options by SoFi can help you take advantage of today’s low-interest rate environment and modify your existing loan to fit your financial goals. 

If you have been able to build your credit score, or you have found a co-signer with a pristine financial history, choosing to refinance or consolidate your loan can also give you access to better terms and interest rates. 

Manage Interests From Day One- and Focus on Repaying the Principal

For many young adults, starting a higher-education journey marks the beginning of the next step of their lives, and, undoubtedly, going to college with an undergraduate loan comes with a fair share of financial responsibilities – which you shouldn’t ignore!

For example, depending on the type of loan you have taken out, you might have to deal with interest rates ranging between 3.22% and 5.28%. While these might seem like small percentages at first, they can quickly inflate your principal if they aren’t managed correctly. 

For example, most student loans won’t require you to start repaying the principal while you are still in school, and for a grace period after your graduation. But while you shouldn’t have to worry about repaying your loan straight away, you should make sure to cover the interest. 

Bear in mind that interest will continue to accrue and get capitalized even when you are not repaying your loan and will add to your loan balance from day one. 

After college, consider paying off the principal as fast as you can, which will reduce the interest on your loan and the overall amount to repay. 

Don’t Borrow More Than What You Actually Need

As seen above, going to college can yield impressive returns. However, if you are planning to take out a student loan to get yourself through college, make sure to know what to expect: most students take 20 years to repay their student loan and professional graduates can take as long as 45 years!

In turn, the amount borrowed can affect your finances for a lifetime. Consider reducing the amount needed by applying for grants, leveraging your savings, and accessing scholarships. 

As you access higher-paying job positions, consider refinancing your student loan and making prepayments to reduce the principal and cut the interest. 

Check If You Qualify For Student Loan Forgiveness

Around 9 million student loan borrowers – or 20% of the American population with student loan debt – are now eligible for student loan forgiveness. 

What’s more, after the sunset period of the pause on federal student loan repayments, which should happen on August 31, 2022, borrowers might receive $10,000 in student forgiveness, a benefit originally promised by Biden during his presidential campaign. 

While not everyone can use this strategy to manage their loan, it is worth checking if you qualify for this important benefit before making important decisions like refinancing or consolidating your student loan, which can affect your eligibility. 

Take a Hard Look At Your Finances – and Make a Plan

A student loan debt worth tens of thousands of dollars can feel incredibly overwhelming – especially if you are just at the beginning of your career path. However, as you begin to earn, you might feel more in control of your finances, which makes this the best time to develop a long-term game plan for repaying your loan. 

Start by understanding how much your total debt is worth and review the terms of the loan, including penalties, repayment rules, and interest rates. Once you are clear about what challenges you are facing, you can create a budgeting plan that will allow you to save more and repay your student loan faster. 

This might include reducing your household expenses by dressing down outside of work, enjoying free activities, cooking and eating at home, and downsizing your living accommodation. 

But, from choosing budgeting strategies like the 50/30/20 rule and living below your means to engaging in a side hustle or building passive income streams, there are many ways to make your money work harder for you!