Loans

It is not surprise to all of us college students that college costs and expenses have increased substantially.

According to Kevin Carey, director of the Education Policy Program at the New America Foundation, in the past 30 years, college tuition has steadily increased faster than both inflation and incomes.

Steve Odland of Forbes Magazine says college costs are out of control, and describes this as no short-term phenomenon. College costs have been rising for decades. In 2011, according to the Wall Street Journal, the average tuition increase was over eight percent—three times the inflation increase of three percent. Carey argues that increased spending in higher education has been passed along to students in the form of higher tuition costs.

So how is the average college student to take on this financial burden?

An increase in college costs means an increase in loans. Pell Grants and Federal Stafford Loans are among the most popular loans to assist students in paying off college.

“The reality is that as college tuition has consistently outpaced the ability of people to pay out of pocket, debt has been the safety valve of our higher education system,” Carey said. “…People know they have to go to college…so they just continue to borrow and borrow and borrow.”

Carey discussed with National Public Radio, that nearly two thirds of graduates have taken out loans.

Liz Weston of Time Magazine shared six tips for new graduates in tackling loans:

1. Know what you owe

2. Reach out for help

3. Explore payment options

4. Research consolidation

5. Rethink aggressive payment plans

6. Know where to find help

My own personal 7th tip is to remember to sell back your books. Whether it is through an online book reseller or through a personal transaction with a classmate, if you don’t need your textbooks anymore, make some money back on them. Save your total textbooks cost, the desk space and the dust.

The National Student Loan Data System helps students know what they owe and counsels them in loan borrowing knowledge and information. Their website offers a glossary of terms, financial aid review, frequently asked questions and student access to loan information such as whether your loans are federal, private, or both. The Consumer Financial Protection Bureau also teamed up with the Department of Education for the Know Before You Owe: student loans project, which allows students better understand the variety and amount of grants or loans they may qualify for.

To reach out for help and save your money to pay off your loans more cost-efficiently, CFPD also provides Repay Student Debt tools. You should also explore other payment options such as Pay as You Earn—a federal, income-based program. Federal Student Aid says, “Income-driven repayment plans are designed to make your student loan debt more manageable by reducing your monthly payment amount.” A program such as this can help to lower your loan payments by less than ten percent of your income after graduation.

Make sure to research consolidation options as well. Consolidating loans offers a weighted average of the fixed rates of federal student loans. Although consolidating loans lowers your payments individual, it also extends the payback period by five to 15 years ultimately increasing your loan cost.

So, some may think to aggressively pay off loans is the best option. However this is not the case–don’t burn out your money. Weston’s fifth step says, you should think cautiously about being too aggressive in paying off your loans. She says, “…they could be poorer in the long run if they don’t take advantage of opportunities to save.” Paying back too much too fast with every available dollar, may ultimately put a dent in your savings.

Most importantly when paying off student loans, know where to find help. Professor of Education at the University at Albany, Kevin Kinser, spoke with Wallet Hub on the subject.

“You want to minimize the risk associated with repaying debt, …Understand how repayment options will make a difference.”

To best understand your repayment options, contact your loan servicer directly to resolve any disputes and/or repayment plans and options.