When it comes to investing in our future, many of us find ourselves asking the same question: When do we start? For a recent graduate, that answer is usually after our student loans are paid off. While this seems like completely sound logic, it actually creates significant financial problems down the road.
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Recent research has revealed a lasting negative impact on important investments including retirement funds, 401(k), home buying, and more. In short, greater student loan debt upon graduation means greater difficulty for starting these important financial milestones. In almost every case, retirement funds are significantly lower by the age of 50, and home buying is significantly delayed compared to someone who graduated without the same handicap.
While it seems that there are no ways around this, there are definitely a few solutions to ensure you can get the start you need. Some of these tips require some effort before graduation while others can be applied right out of college. At any rate, these are all solid ways to cut down on student loan debt; leaving you with more room to invest in a home or save up for retirement.
Public Service Loan Forgiveness
This option technically does not apply to everyone, but it is still a great way to rid yourself of student loans sooner, rather than later, for those who are eligible. Under this federal program, debtors can sign up for a pre-existing federal payment plan to start paying down their loans. After 120 payments or 10 years of consecutive payments, the remaining loan balance is forgiven. In short, PSLF puts you on the fast track to being student loan debt free.
While this sounds like a solid deal, it is only available to a select group of eligible applicants. First, you must be employed full-time by a government or non-profit organization. Any loans received under the Federal Direct Loan Program are eligible. Participants can choose from several different payment plans including any of the income-driven or the 10-year standard repayment plans.
If you take advantage of scholarships properly, then you will not have to worry about a single student loan. For those who do not know, scholarships are financial aid awards that are commonly referred to as “free money.” They do not require any sort of repayment. Without any debt or interest to worry about, you can get started on your financial milestones immediately out of college.
Scholarships are awarded for various and numerous different reasons. There are low competition scholarships with easy applications; additionally, there are plenty of niche scholarships that specifically meant for a specific group of applicants. Scholarships are a numbers game, so applying to as many as possible is a great way to get exposure while increasing your chances of winning. You can increase your chances further by focusing on low competition opportunities.
Student Loan Refinancing
One of the more popular options from the private sector, student loan refinancing helps restructure multiple student loans and interest rates into one single loan and rate. If your monthly payments are exceedingly complicated, then refinancing can easily simplify these payments. Since refinancing is exclusively a private service, potential applicants benefit from being able to shop around for the best deals from various different private lenders.
There are several incentives to refinancing. First, you can get a more manageable loan, so there is only one monthly payment and one interest rate to worry about. Second (and most importantly), you save a considerable amount of money in interest. With decent credit, you can qualify for a low-interest rate which leads to less capitalization on a loan. On top of all this, borrowers can choose from multiple different repayment plans, so they can limit their monthly payment several ways which leave room for other financial obligations.
Similar to a scholarship, a federal grant does not require any sort of repayment, so you do not have to worry about interest or any sort of debt. Despite their similarities, grants and scholarships have major differences in terms of availability and eligibility. Federal grants are offered by the government via FAFSA application. While this makes the application process simpler, it lacks the variety of opportunities offered by private foundations and organizations.
On top of this, federal grants are awarded based on financial need, so only those from needy financial backgrounds will qualify. At the end of the day, they are not as available as scholarships, but this does not limit their usefulness to those who qualify.
Student Loan Consolidation
While similar to and often confused with refinancing, student loan consolidation is a service offered by the federal government that technically does not save money, but it does make loans more manageable. Consolidation is offered to those having trouble with multiple monthly loan payments. By lumping these loans together and extending the repayment term, a much lower and more manageable monthly payment is possible; however, there is a cache.
A new interest rate is determined by averaging all previous interest rates which does not lead to any savings in terms of interest. On the contrary, this leads to a more expensive loan down the road, so in reality, federal loan consolidation offers temporary relief at a cost.
Another alternative method on this list, the Federal Work-Study program is offered by the government to those who apply through the FAFSA. Like a federal grant, the Work-Study program is only offered to those who display a clear financial need, but those who qualify have quite a bit to benefit from this program.
Eligible applicants are offered a job on-campus for federally funded compensation. Oftentimes this job is directly related to the participant’s career path which makes the experience especially valuable. On top of gaining experience, Work-Study student workers receive compensation for their work to use at their own discretion. This means participants have the option to put their pay towards student loans, food, rent, or even textbooks. It is a student loan alternative with multiple benefits for hard workers.
About the author: Andrew writes about scholarships and college life at ScholarshipFly.com. Follow him for more great tips on how to manage your finances before, during, and after college.