Applying for college in order to gain academic knowledge and a degree is a very noble effort no matter where you come from. Students from around the world often come to the US in order to gain relevant knowledge for their chosen fields only to return home and start building their careers.
However, the US academic education system is different than most around the world – mainly because it depends on student tuition payments. The average cost of tuition in the US comes to around $35,000. Couple that with additional costs of living, study materials and pocket money for extra measure. While some countries offer ‘free’ academic education for students with certain credit scores, the US has a different system in place.
This system is fundamentally flawed since students often make mistakes that result in debt, additional loans or loss of interest in studying as a whole. But how does student loan repayment actually affect your credit score in the end? How do you take care of debt, and will you be able to consolidate multiple student loans in the future? Let’s take a look at some common mistakes that students make due to misinformation, how you can postpone and lessen your tuition repayment as well as the credit implications involved.
Common loan repayment mistakes
Students are young and often inexperienced individuals when it comes to handling their own money. It can be difficult to wrap your mind around the money involved in graduating from a US college for an individual student. This is why many students stumble and make mistakes that could have easily been avoided:
Loans are not free money
Student loans represent repeated help you get from a bank or an institution for your tuition fees. The loan you acquire will often come with strings attached. These involve achieving certain credit scores, finishing college on time each year, not spending money on anything but tuition, etc.
These specifications vary from bank to bank, so make sure to carefully read the fine print with your parents or caretakers present. Writing your student loan application form thoroughly is the first step towards paying only as much as you have to – no more than that. It’s a good idea to use one of the quality writing services found online for your student loan application form.
If you are unfamiliar with filling out the paperwork and submitting it for loan approval, hiring a professional writer to do it for you might be a better idea. Loans are not free money you get for being a good student – they are planned for future repayment. Every cent you spend will have to be repaid, most often with interest involved.
Different repayment plans
If your bank gives you a contract to sign without explaining the additional repayment methods involved – walk away immediately. Each bank is bound to give you multiple repayment methods based on your household income, family status, work relations, credit scores, etc.
Again, these vary from state to state and bank to bank. However, the most important thing is that you don’t have to be bound to a single repayment method that might cost you more than it’s worth. Make sure to take a look at the federal state issued repayment methods before choosing a bank for your tuition fees – chances are that you will find a better deal by doing research beforehand.
Variable VS Fixed interest rates
Interest rates represent the additional percentage of the money you will have to repay the bank after taking out a loan. This is what makes student loan repayments difficult and stressful both for parents and their children. The fine print mentioned above can often contain vague information that can be taken out of context in order to charge you more money than was originally intended.
This often manifests in your credit score. If the bank notices that your score is below their threshold, they might charge you more money than originally intended. This is why it can be really stressful to focus on productive studying as the bank looms over your head waiting to raise the interest rates. One of the most common mistakes made by students is the misunderstanding of variable and fixed interest rates.
You should always look for fixed rates before opting for variable ones because they can often skyrocket in the blink of an eye. Fixed rates will ensure that you only have to repay as much as you were originally told in the bank’s contract. Consult your financial aid advisor or a family lawyer before signing any paperwork that might look too good to be true.
Pausing your repayment
A saving grace for many students is the ability to temporarily freeze their student loan repayments mid-cycle. This can be done in two distinct ways, depending on the type of contract you have with your bank. Let’s take a look at what forbearance and deferment mean in the grand scheme of repayment strategies:
Forbearance is a principle of freezing your loan with the accumulation of interest. Once you freeze your repayment, your interest rates will start growing despite whatever contract you have initially signed. This can be achieved in a number of situations that involve your inability to make regular payments.
A proof of your financial status and income will be needed for forbearance to take effect. Remember that the federal state policies involved in forbearance accumulate and snowball as long as your loans are frozen. Forbearance should only be used as a last-ditch effort to make it to your next monthly repayment.
Deferment is the less-evil twin sibling of forbearance. It allows you to momentarily freeze your loan repayment without any accumulation of interest during that period. This is a more viable solution for students but it comes with its own set of rules.
Deferment will only take place if your credit score is satisfactory, if your extracurricular college activities are plentiful and if your campus reputation is respectable. Banks take deferments very seriously and are willing to help students out if need be.
However, freezing a loan repayment without any interest involved does require more vetting and background checks than forbearance. Choose the right pause method for your needs but make sure to leave both of them as last resorts. It is always better to simply pay your monthly loan repayment on time to avoid any fuss with the bank or university.
A student’s catch-22
Coming to terms with your loan repayment can be difficult. You need to pay attention to your credit score and the time management involved in passing all the subjects on time. At the same time, your bank will constantly be monitoring your progress, looking for any breaches of your contract.
This creates a catch-22 effect where students have to keep their credits high while still repaying the money on time. Unfortunately, student loans are often the only way for people to apply for college and get a degree in the end. What makes things even more stressful is that no one can guarantee that you will find work as soon as you graduate. Only time can tell whether that investment is smart or not.