Student loans can seem like a mystery while you’re in school. You may wonder how much your monthly payments will be, whether the interest rate will increase or what the terms of your loan really are. If you have questions about your student loans, it’s likely because there are a few things that the student loan companies don’t like to come right out and explain to you. Here’s a quick list of all the things they won’t tell you – and what that means for your repayment.
1. You Have Alternative Repayment Options
When that first bill arrives after graduation, you may experience something similar to sticker shock. But don’t worry just yet – there’s usually an alternative if you can’t afford the monthly payments. Federal loans come with several alternative repayment options. Income-base repayment, for example, caps your monthly bills at 15% of your disposable income. Graduated repayment lets you have small payments at first, and then the payments slowly increase over time. There are also options like forbearance and deferral, which allow you to stop payments for a period of time.
Not all private lenders offer this many alternative repayment options, but many offer something similar. If you are having trouble making your monthly payments, contact the lender to see if you can figure out an alternative repayment plan. Remember that even making small payments each month is much better than making no payments at all.
2. Debt Builds Up Faster Than You Think
These days, it’s not unusual for a student to graduate with over $50,000 in loans. However, the larger your loan amount, the harder it will be to make a dent in that debt. Some students diligently pay the student loan bills every month without really looking at the numbers. Unfortunately, what many discover is that the minimum payment barely covers the interest that accrued on their loans that month. Pay attention to how much you need to pay to start making reductions on the amount you owe. This usually means that you’ll have to make sacrifices and pay more than the minimum monthly payment to really see results. The longer you wait, the more your debt could balloon.
3. Bankruptcy Won’t Make Student Loans Disappear
Don’t take out lots of student loans with the idea that bankruptcy will be your way out if you can’t pay them back. Bankruptcy almost never erases your student loan debt. There have been very rare exceptions where a bankruptcy judge has released a person from their student loan debt, but that only happens in cases of severe economic hardship and you’d need a lawyer to have a chance at all.
(Also read: How Your Student Loans Affect Your Credit Score.)
4. Co-Signers Will Be Held Responsible
Having a co-signer is not just a formality with student loans. If a borrower cannot pay back their loans, the co-signer will be held responsible. This is especially important to keep in mind since private lenders can be especially persistent. Co-signers shouldn’t assume that the debt will go away in the event of a disaster, either. While federal loans are forgiven in the event of death of total disability, private loan companies will still go after the co-signer for the money they’re owed.
5. You Can’t Escape Your Payments
Both the government and collection agencies are allowed to use tactics to get your payments that they aren’t allowed to use with other types of loans. If you’re not paying your student loan debt, you could find that up to 15% of your wages are being garnished. They can also snatch up your tax refunds, your Social Security or even your disability payments. Worse yet, they can take away your ability to work by cancelling professional licenses for lawyers, healthcare workers, teachers, etc.
Despite what it may sound like from the above list, student loans aren’t all bad. In fact, they can be a sound investment in your future. However, it’s critical that you minimize the amount you borrow and that you are disciplined about making your payments after graduation in order to keep financial woes at bay.