Graduating from college comes with a lot of emotions - you're anxious to start the next chapter of your life. You're sad you have to leave all of your friends from school. Lastly, you're stressed because you're trying to figure out how in the world you're going to pay back your student loans.
You're not alone. According to FICO, the average student debt burden a post-grad carries is $27, 253. It's understandable why that number would frighten a graduate fresh out of college. Luckily, complications associated with paying back student debt often stem from simply not knowing enough about it.
Don't let student loan payments get you down. Here are examples of what to avoid and how to do it:
1). Know that income-based repayment isn't as great as it sounds.
It makes sense at first - instead of paying more than you can afford, the government decides how much you pay based on projected income. Approximately 15% of your estimated salary for the year becomes the total debt you are required to pay off, and after up to 25 years, the debt is forgiven. Unfortunately, the federal government still taxes forgiven debts in a large, one-time, tax payment. So, for example, if you're a post-graduate with debt that amounts to six figures, the tax would likely add up to five figures and require immediate repayment.
2). Student loans could stop you from buying a home.
Debt-to-income ratio is important when banks are deciding if they'll give you a mortgage or not. If you find homeownership to be important, consider a faster repayment method.
3). High interest will increase the amount owed after consolidating private loans.
Yes, consolidating comes with an excellent advantage - one monthly payment instead of scattered bills that are difficult to organize. While consolidating decreases monthly charges, it increases the amount of time it takes to repay your loans, therefore causing you to pay a lot more in interest. Private loan companies are notorious for high interest rates that can add thousands to your debt. One way to avoid this is by consolidating your loans when your credit score has significantly improved by 50 to 100 points - you may be able to snag a better rate.
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Categories: Planning, Students