Managing Your Student Loan

REDUCE YOUR STUDENT LOAN
DEBT IS A BURDEN – LIGHTEN IT

Student loans seem like a great idea as you are entering college but they can be overwhelming when you have to pay them off. There are just two things you can do – reduce the amount of loan you need, or pay off as much debt as soon as possible. The question is how much of a loan should you take and how do you pay it off quickly? Let’s take a look at both options:

Reducing the burden of Debt

Some tricks include reducing expenses by living with a friend, relative, or in shared accommodation, and obtaining study material from seniors. Here are a few other strategies that can help you reduce the amount of loan you need in the first place:

Start Saving Early

Rather than spending all your pocket money in the high-school canteen, or the theatre, save up a bit for your undergraduate, or PG course. Your parents will likely be doing the same. You can pool your resources later and come up with a substantial amount to sustain you. If you place your savings in carefully selected instruments like blue-chip stock, or mutual funds you can multiply them manifold and substantially increase the down payment on your student loan.

Pick your college and destination carefully

Think carefully about the country, college, or university you choose to study in. You may not have a lot of choices but the point we are trying to make here is that you should look at all options before you make your decision.

Start early and rope in your parents while you research – they’ll be able to guide you regarding financials, computations, estimating potential EMI, and so on so that you are prepared to repay the loan when you land your first job. Once you begin asking the right questions, even colleges will be forthcoming with assistance and guidance to reduce the amount of your loan. All of this can contribute towards reducing the loan amount. Here’s an article that might help understand this better – What are Your Study Abroad Options?

Consider Free Funding Options

Apart from the loan, here are other ways to fund your education such as earning a full, or partial scholarship which you can supplement with a government grant. This can substantially reduce the amount of loan you need – often to the extent of complete tuition fees in which case you only need to pay for the study material and accommodation.

If you are of age and able to work, your employer may be willing to sponsor full, or part of your tuition fees. Your income will be an additional source of funding which means you’ll only need a little bit more for which you can take a loan. Read our blog on Ways to Study Abroad for more options.

Opt for a Government Loan

No one wants to be indebted but if you must take a loan, borrowing from the public sector, or a nationalized institution, is better because they have some distinct advantages. You can read about them here – The difference between government and private loans.

Plan

You should use your savings as far as possible – say for the first two years of college – and then borrow the rest when you need it. Sounds good but you might end up taking a bigger loan than you anticipated – and costlier too in terms of interest. On the other hand, if you decide to spread your savings over the entire course, you could be paying unnecessary interest in the latter years. The decision is not easy so consult a financial advisor, or loan counselor to understand your best options. Meanwhile read about how you can estimate your future earning potential and make an informed decision.

Accelerate your Course

Most global universities allow you to take multiple courses simultaneously reducing the duration of your education. This means that you get a job earlier than anticipated and begin paying off your education loan sooner.

To do this you must plan your career from the time you complete your SSC, or XII right up to the time you graduate and begin working. That way, you’ll know your requirements well ahead of time. You can then begin planning and saving along with your parents, and accumulate enough to see you through with only a small student loan if that.

Other than crowdfunding through social media, we’ve covered practically every way to reduce the amount of loan you may need for college. If you still have questions read our blog about Study Abroad FAQ.

Consider Income Sharing

This is a relatively new concept under which educational institutions allow you to learn for free and pay the tuition fees once you secure a job. Most institutions also promise to place you with a minimum specified income so that you can pay for your tuition and have a bit left over for expenses. Read more about Income Sharing in our blog What is ISA and How does it help you?

Managing your Student Loan

Despite all efforts, if you still find it challenging to reduce the amount of the education loan you need, here’s how you can manage your loan efficiently:

How much do you owe?

Students – misguided, or not – often take loans arbitrarily as and when required. Taking only as much loan as you need may seem like a good plan but if you are doing this, your debts can pile up until you suddenly realize that more than half your salary is going towards loan repayment and there’s very little left over for expenses.

To avoid this happening to you, keep a running record of your Owings and EMI. That way, you’ll always know where you stand and it will deter you from taking loans that may be avoided.

Understand your Loan

Before signing the application form, or loan agreement, carefully read and understand the terms of the loan. A day or week spent on this will stand you in good stead later when you realize that you acquired the loan at the best of terms.  To know more about understanding your loan read our article on Understanding Student Loans.

Increase your Down Payment

Many lenders ask for a down payment before sanctioning your loan. Whether, or not they do so, down payments work in your favor because it is not considered a part of your debt. So follow the steps above and ensure that you can put up as much of the funding as you can yourself.

And if the loan terms confuse you, you can learn more about them in our blog on How to Get a Student Loan.

Think about Debt Consolidation

If you have made the mistake of taking loans as and when required, you should consider debt consolidation – a process whereby you can club all your debts into one. In simple terms, banks and lending institutions offer to pay off all your outstanding loans by giving you a single loan for the total consolidated amount. That way you have to manage only one single loan and get a bit of a breather since this is a new loan and you can defer EMI for the moratorium period.

Automate EMIs

Automating your EMI from your salary account will ensure prompt repayment of the loan and deter you from spending the amount on other things. You also don’t have to keep track of your EMI due dates.

Ask for Deferment

Student loans are usually tied to future earnings so if you have trouble landing a job soon after you graduate –, or happen to lose your job for some reason – you can request deferment of EMI till such time you get a job. On a note of caution though, make sure you understand the terms and conditions under which deferment is granted. You can also think about consolidation and moratorium for the new loan till such time you begin earning again.

Explore Prepayment

Some lenders allow you to prepay your loan – that is settle it ahead of time. There may be a small penalty for prepayment but if you do your computations right, you may be able to save yourself some grief. So this is one option you should explore in detail. Incidentally, prepayment comes into play during loan consolidation too. If there exists an understanding between the lenders, your penalty may be waived. If not it becomes a part of your new loan.

Loan Forgiveness

In extreme cases – such as the Covid 19 pandemic, or shutting down of the institute where you have enrolled – lenders may be willing to forgive your entire loan amount. Also if you have taken multiple loans forgiveness may not be granted for all. You should know and understand the terms of loan forgiveness.

Summing Up

Taking a student loan is easy. Managing it – and repaying it promptly – is not. It is advisable to plan and proceed with caution. Borrow only as much as you need and plan how you will repay it. We have tried to bring you all the information you need about student loans. If you still need more information, do write in the comments, or email us. Join us on Facebook to drive discussions on student loans and don’t forget to sign up for your weekly update.

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