Student Loan Prepayment: Benefits, Considerations, And Strategies - This Money Matters module covers the basics of paying for school, types of student loans, and loan repayment. It's never too early—or too late—to explore your options for education beyond high school. Students have a variety of college options, from two-year community colleges to four-year colleges and universities, to technical, vocational, trade schools, and certificate programs.
A college education is a long-term investment. About three out of four students borrow money to attend college. Nearly one million Wisconsin residents have student loan debt. It takes an average of 20 years for borrowers to repay their student loans.
Student Loan Prepayment: Benefits, Considerations, And Strategies
Borrowing money for continuing education usually pays off by earning more money after you graduate with your degree or certificate. People with education and training beyond high school earn more in their lifetime. Remember though, even if you don't complete your degree, you still need to pay off your student loans. Currently, changes to student loan repayment plans as well as loan forgiveness options are being considered by the federal government. Visit studentaid.gov for the latest information on these topics.
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With Direct Subsidy Loans, the Federal Government pays the interest on your loan while you are still in school. Certain students with demonstrated financial need qualify for them.
, Direct Subsidy Loans are loans made to eligible undergraduate students who demonstrate financial need to help cover the costs of higher education at a college or vocational school. The government pays the interest on your loan while you are enrolled in school at least half-time.
It's not true, even if you don't finish school, you'll still need to pay off your student loans. Students who take out loans and don't graduate may have a harder time paying off their debt because they won't have the high earning power that usually comes with a degree.
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There's usually a six-month grace period before you start making payments after you graduate, drop out, or drop below half-time enrollment for most — but not all — federal student loans.
, this free period gives you time to settle down financially and choose your repayment plan. Even if you are still unemployed, you will be expected to start repaying your loan after your grace period ends.
No one wants to take on more debt than they need to go to school. This video talks about responsible borrowing strategies.
When you're looking to pay for school, you'll want to use any scholarships and grants available to you first because those funds usually don't have to be paid back. Grants are often based on need based on your income and situation, while scholarships are usually based on merit. Grants and scholarships can come from schools, the federal and state governments, and private or non-profit organizations. Search for state and local scholarships and grants using one of the many free scholarship search options available, such as careeronestop's scholarship finder.
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The US Department of Education offers a variety of federal grants, including Pell Grants and TEACH Grants. Most federal grants are awarded to students with financial need. You can find more information about the types of government grants, who is eligible, and how to apply on the Federal Student Aid website. Note that some grants may be disbursed if the student leaves school or does not meet other grant obligations.
After accepting any grants or scholarships, plan to use federally funded student loans, followed by non-federally funded student loans, before taking out personal loans. Just because you've been offered a student loan, doesn't mean you have to accept the entire amount. Borrow enough to ensure that your tuition, housing, and other expenses are covered in full after using your work income and any other sources of income. A general guideline is to try not to take on more total student debt than you expect to earn as a starting salary the year you leave school, as explained here: How much should I borrow in student loans? See the "Student Loans" section for more information on the different types of government and private student loans.
All students need to fill out the Free Application for Federal Student Aid (FAFSA®) if they are interested in federal student aid, whether it's grants, student loans, or work-study. Information from your FAFSA form is used to determine the cost of attendance, how much families are expected to contribute, and how much need-based or need-free financial aid you can get to attend. Students will receive this information in a school aid offer or 'award letter' from any of the schools they listed on their FAFSA form, more information on this here: Comparing School Financial Aid Offers. Because your financial aid package is based on the cost of attending a particular school, your aid amount will vary from school to school. To continue receiving federal student aid, fill out the FAFSA form each year you are in school.
Veterans: The US Department of Veterans Affairs has information about GI Bill benefits to support education and skills training for service members, veterans, and their families at VA-accredited institutions. Qualified individuals can apply for VA education and training benefits online, in person, or apply by phone. Learn more on the VA website - Education and Training. In addition to the federal government, non-profit organizations also provide money to the university for veterans, future soldiers, active duty personnel, or those related to veterans or active duty personnel. Learn more at this US Department of Education website for military families.
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For more information about college planning and saving for college, visit the UW-Madison Extension Department's website: Saving for Postsecondary Education.
Student loans are issued by the federal government and private financial institutions. A variety of loan options are available, and some students are eligible for subsidized loans that come with low interest rates and payments that are deferred or deferred until graduation. All loans must be repaid with interest.
Federal loans are issued by the government, on terms and conditions set by law, and include many benefits, such as fixed interest rates (described in Federal Student Aid Loans) and income-based repayment plans (described in Federal Student Aid ) is usually not offered for personal loans. There are four types of Direct Loans available through the US Department of Education:
Private student loans are issued by private organizations, including banks, credit unions, government agencies or schools. These types of loans have terms and conditions, such as fixed or variable interest rates, that are set by the lender. Private student loans are generally more expensive than federal student loans. Watch this UW-Madison Extension video for more information about using private student loans.
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Private student loans often require the borrower to have an established credit history. Borrowers with bad or short credit history will have fewer personal loans available to them and will usually pay higher interest rates. Personal loans may also require a co-signer with a more proven credit history. If the student is unable to make their personal student loan payments, then the co-signer is responsible for making the payments. This UW video discusses co-signing for a private student loan.
This section covers paying off student loans - and the interest. A good first step when planning to pay off debt is to create a budget that includes current income, expenses, and all monthly debt payments, more on this in the Make a Spending Plan module. Whether you have government or private student loans, make sure you're taking advantage of the tax credits and deductions you get, more information here: Education Tax Benefits: Information Center. Learn more about student loans and tax savings in this UW-Madison Extension video.
You should not pay until after you graduate, drop out, or stop enrolling until after the break. Keep in mind that the interest on your loan continues to accrue while you are still in school, unless you have a 'subsidized loan.' With Federal Parent Loans, a parent can choose to forgo payments until the borrower graduates, drops out, or drops their enrollment status. of half time.
Grace Periods: For most types of federal student loans, after you graduate, drop out of school, or drop below half-time enrollment, there is usually a grace period of six months before you must start making payments. This free trial period gives you time to settle down financially and choose your repayment plan. This repayment period can be affected by a number of different circumstances, including the type of Federal student loan, active military, returning to school before your repayment period ends, and consolidating your loan which will cancel any repayment period. Learn more about free use sessions through the US Department of Education.
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Repayment Plans: Federal student loans offer many types of repayment plans that are not available with private student loans. Repayment options range from Standard Plans to Extended Repayment Plans, and include Income-Based Repayment Plans for borrowers who have more debt compared to their income. There is no prepayment penalty if you can pay off your student loans ahead of schedule. Although you can choose or be offered a repayment plan
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