The Daily Orange is a nonprofit newsroom that receives no funding from Syracuse University. Consider donating today to support our mission.

Student debt in the United States is at an all-time high, and it’s climbing fast. Total student debt more than doubled between 2009 and 2019, increasing from $772 billion to $1.6 trillion.  Tackling the issue of student debt requires rewiring the cost structures of the higher education system and addressing many complex nationwide issues. However, there are smart ways you can get a head start on tackling your loans.

To start, refund checks are not free money. Many private loans will offer you about $5,000 in refund checks that can be deposited directly into your bank account. But if you accept this money, you’re essentially taking on an additional loan that will be added to your student loans. If you take a $5,000 refund check today at an interest rate of 5%, that will grow to be over $10,300, which you’ll have to pay back in 15 years.

There’s three main kinds of student loans: federal subsidized, federal unsubsidized and private loans, specifically Sallie Mae. Federal subsidized loans are student loans in which the government pays for your interest payments while you’re in school. With federal unsubsidized and private loans, your loan will begin to gain interest while you’re in school.

The interest rate on federal loans tends to be significantly lower than private. Federal loans stand at 2.75% for undergraduates, while the popular Sallie Mae interest rates range from 4.25% to 12.35%. As of March 31, federal student loans were placed on automatic forbearance — you can still make payments as desired — and interest rates were set to 0% until Dec. 31. The way your private loans have changed since the beginning of the pandemic will depend on where you are borrowing from.

Sallie Mae has no automatic forbearance, but if requested, you may suspend your student loan payments for up to three months without impacting your credit standing. You’ll still gain interest, but the interest accrued during this time won’t be added to the total amount of your loan and be subjected to additional interest.

Depending on the type of loan you have, the date that your loan starts to grow will differ. If you’re a freshman with a $10,000 federal subsidized loan, your $10,000 will start to gain 2.75% interest a year compounding six months after graduation. Assuming you don’t make any payments, your loan, including principal and interest, totals $17,204 after 20 years.

But for a federal unsubsidized loan of the same amount of money and with the same time period, your loan will total $19,176 because interest will have been accruing since freshman year instead of six months after graduation. If you had a Sallie Mae loan for $10,000 at an interest rate of 5%, your loan will total $32,251 after 24 years. These numbers are understandably daunting, as most students have more than one type of loan. One way to manage this is to start early.

Let’s be real, most of us don’t have thousands of dollars lying around to pay off loans. One misstep I often see is students saving sums of money “for when I start paying my loans.” If you have money to contribute to your loan after setting aside an emergency fund, contribute to it now. With the way interest works on debts, what you pay now will have a lot more buying power than it will in 20 years. With strategic budgeting, a small monthly contribution of $10 to $50 can be easily built into your life and will save you thousands of dollars in the future.

Many loan servicers allow you to set automatic payments to make toward your loan, which is an easy and low-maintenance way to start. Go to studentaid.gov to find out how many student loans you have, as well as which company you will be paying back. For private loans, go directly to the loaning company’s website to get started. As always, if you have any questions, set up an appointment with me or any of the Smart Money Coaches through Orange SUccess. You got this!

Andrea Lan is a junior finance major and a Smart Money coach in the Office of Financial Literacy. Her column appears bi-weekly. She can be reached at alan01@g.syr.edu.

 

Published on November 11, 2020 at 8:42 pm