When you began college, you likely had the option of financial aid.
This aid might have been needs-based, it might have been grants,
and it might have been loans.
Hopefully, whatever kind of aid you got involved an intake interview
or counseling session so that you could understand all of the terms and agreements.
But sometimes that doesn't happen…
and even if it did, that was a couple of years ago.
But let’s not doubt ourselves.
We’re smart! We’re getting a college degree.
Some of us can interpret Hamlet’s soliloquies.
And if we can handle Shakespearean prose,
we can handle modern finance jargon like “forbearance” and “consolidation.”
Student loans can feel like a lot to deal with,
but they don’t need to be incomprehensible.
We just need a little study session.
Hi, I’m Erica Brozovsky, and this is Crash Course: How to College.
a Study Hall series presented in partnership with Arizona State University.
Today we’re going to talk about how to pay back our student loans.
[INTRO MUSIC PLAYS]
Okay, time to study some vocab.
Everyone’s situation is different, but by the end of this episode,
you’ll have a cheat sheet, or study guide for paying back your student loans.
And like any other technical class with a lot of specialized language,
you might find it useful to take notes.
So this would be a good place to pause and grab your favorite note taking technology.
The first thing to remember is to always ask questions.
Remember that just like in the classroom, there are no stupid questions.
We took out the loans, so we should understand them.
And one of the first places we can take our questions
will typically be our college’s financial aid office.
They can tell us how much we owe, and who we owe it to.
In fact, before we graduate, our school is obligated to offer us exit counseling,
which lets us learn about our student debt and ask any questions we might have.
It’s typically an online tutorial students complete on their own,
so it’s important that if you have questions,
you talk to an actual person in the financial aid office before you graduate.
Exit counseling can also help us understand some basics.
Like the amount we borrowed when we first took out the loan is called the principal.
And all loans also have an interest rate,
which is like the cost we pay to whoever loaned us money
[-- as great as that would be, they didn’t do it out of the goodness of their hearts!].
When we pay back our loans, we’ll have paid off both the principal
and the accrued interest.
Now, there are a couple of different kinds of federal loans that may have been
offered to you when you enrolled in college.
If you’re a new or recently graduated student,
you may have had access to Direct Subsidized Loans,
Direct Unsubsidized Loans (also known as Stafford Loans), or Direct Plus Loans.
A Direct Subsidized Loan is available to any undergraduate student with financial need.
We talk more about financial aid in Episode 5,
but the important thing to know here is that if you are offered a subsidized federal loan,
the government will pay the interest as long as you are in school at least part-time;
for the first six months after you leave school–which is known as a grace period;
as well as during any deferment periods, which is when your loan payments have been postponed.
A Direct Unsubsidized Loan, on the other hand, is available to any student who wants one.
This is not a needs-based loan, although how much you can borrow
is determined by your school, what year you’re in, and other factors.
You as the borrower are responsible for paying all of the interest on this loan,
and the interest starts accruing immediately.
There are also Direct Plus Loans.
These are made to either the parents of undergraduates
or graduate or professional students.
Eligibility here is based on a credit check;
if you’re an undergraduate who is dependent on your parents
and they can’t receive Plus loans, you may be eligible for more
Direct Unsubsidized Loans.
The same is true if you’re an independent undergraduate student;
if you’re not dependent on your parents,
you won’t have access to the Direct Plus Loans,
but you may be eligible for a higher amount of a Direct Unsubsidized Loan.
For you returning students who have done college before,
you might be thinking “okay, I remember Stafford Loans - where are the Perkins loans?”
I’m sorry to be the bearer of bad news,
but the last Perkins loan was distributed in 2018 and the program no longer exists.
Likewise, Federal Family Education Loans haven’t been around in a while.
Probably the most important thing to understand about making
your federal student loan payments is that although you’re borrowing
money from the government,
a third-party loan servicer has been hired to manage billing,
invoicing, payment tracking, and more.
To find out who your servicer is, you can visit the studentaid.gov website.
And it’s important to keep track of what you owe even while you’re in school,
because those loan payments are on the horizon,
even if it doesn’t feel like it.
That six month grace period after you graduate,
where you don’t have to start paying your loans?
Well, it goes by fast.
Paying back loans has a significant effect on your credit score.
Each person has one, and it tells banks and other lenders
how likely it is you will pay back a loan on time.
You can check yours with a third-party service or through a bank that you use.
A good credit score can help us get other loans, buy a house, or rent an apartment.
Your score goes up when you reduce your debt and make timely payments.
Of course, sometimes life happens and this isn’t possible.
In these cases, it’s possible to put loans on forbearance, or delay making payments.
It’s also possible to defer payments in other circumstances as well.
For example, if you go to graduate school,
you can defer until you are finished earning your next degree.
Just be aware that if you do that, your interest may still accrue.
This is one reason why it’s never too early to start making payments.
You can chip away at your loans when they are on forbearance
or even when you are still in school.
It’s sort of like washing a couple dishes when you have down time.
Paying down $100 when you have extra is a great habit, because over time it adds up.
If we don’t make payments on time, we eventually have to default,
meaning we’ve failed to pay back the loan.
This is terrible for our credit and can cause major problems in other areas of life
(like renting an apartment or financing a vehicle).
So deferring loans when possible and chipping away at them is the best option.
Let’s go to the Thought Bubble.
Casey graduated from Crash Course State College six months ago.
She’s been getting reminder letters from her loan servicer
that her loans are about to come out of deferment
and she’ll need to start making monthly payments.
To make sure she doesn’t fall behind,
Casey can make a budget to manage all of her financial commitments.
She needs to factor in her loan payments along with medical expenses,
rent payments, and necessities like food and transportation.
After looking at the suggested repayment plans,
Casey’s still a little confused about how much she owes and when.
If you’re unclear about your own monthly loan obligations,
you can use loan simulator websites to give you a sense of what you’ll owe and when.
Budgets and tools like this can help you picture for the future,
exactly what you need when you’re making long-term plans.
There are also loan forgiveness programs.
There are several ways to qualify, but some of the most common ways
loans can be forgiven include working for the government or a non-profit
for a specific period of time, teaching at a low-income school,
and becoming permanently disabled.
Contact your loan servicer if you think you might qualify,
or look at the detailed information available at studentaid.gov.
Thanks, Thought Bubble.
Paying off student loans is a long-term commitment, and in that time, a lot will happen.
We may change jobs, or even our whole careers.
We may find that we have new obligations that we didn’t expect.
Life is full of surprises.
That’s why it’s important to zoom out from our monthly payments
and consider ways to change the larger process of how we’re paying back our loans.
Making payments should feel more like a marathon than a sprint.
So if it seems like we have to cover a lot of distance in a short amount of time,
it may be time to assess our options.
The standard repayment plan calculates your repayment schedule over 10 years.
This could be far too financially stressful for some borrowers,
so other, income-driven repayment plans may be more appropriate.
It’s possible to switch to a graduated repayment plan,
which gives us lower monthly payments now, but increases over time.
There are also extended repayment plans, which lower our monthly payments
by increasing the length of time that we’ll be paying back the loan.
Here there’s no sudden increase in steepness, but we’ll be running a lot longer.
But figuring out how we want to repay our loans isn’t the only step
we can take to manage how much we’re paying each month.
There are other ways to lower monthly loan payments as well.
Many of us have multiple federal loans, and maybe even multiple servicers.
We can combine these together, or consolidate our loans,
in order to simplify our repayment process and have
just one monthly payment to think about.
In some ways, it’s a little like deciding between
fighting 1 horse-sized duck or 100 duck-sized horses.
But in this case, you usually choose the horse-sized duck.
When we consolidate loans, the monthly payment tends to be lower,
and we usually get more time to pay them back.
Plus, you don’t have to keep track of 100 different horses.
It’s simpler, but there are some potential downsides.
Consolidating loans might mean forfeiting your right
to certain types of loan forgiveness.
Consolidating also means that interest becomes part of the new principal.
So going forward, we’ll be accruing interest on a higher principal
than we would if we hadn’t consolidated.
Be careful about for-profit loan consolidation companies,
though–these may result in you paying larger monthly installments
or unfair interest rates.
Last, private loans can’t be consolidated with federal loans
and are not tracked by any federal servicers,
so this option doesn’t work for everybody.
So as always,
study up before making these decisions and rely on good advice whenever you can.
The important thing to remember is that there are options.
Ask questions!
What we’ve covered in this episode is just a start,
but there are many resources and people that can help you.
So if you ever feel stuck, keep in mind that
all of our schooling has made us excellent learners.
It may seem complicated, but we’re capable of problem-solving
and gaining knowledge about our loans that can help us conquer them.
Becoming a person who is able to handle those challenges
is why we went to school in the first place.
Thanks for watching this episode of Crash Course How to College.
This series is part of an expanded program called Study Hall.
Crash Course has partnered with Arizona State University
to launch Study Hall on its own channel.
Check out youtube.com/studyhall where you’ll find more tips about navigating college,
choosing a major, plus foundational courses connected to college credit courses
that students struggle most with in their first 2 years.
We hope to see you over there!