The cost of a college education continues to rise. Interest rates on federal student loans just went up again. Annalee Leonard from Main Stay Financial tells Cherish Lombard undergrads will now be paying 4.66%, up nearly 1 point from last year’s rate of 3.86%. Rates for grad students now sit at 6.21%, up from 5.41%, and parents who took out loans at 6.41% last year will pay an interest rate of 7.21% this year.
The rate increase means Stafford loan borrowers will pay about $46 more per year for each $10,000 they borrow based on a 10-year repayment period. And Leonard says it’s expected to get worse. Last year, Congress passed a law tying interest rates to U.S. Treasury notes, so they’ll likely go up each year. The good news is that there is a cap at 8.25%.
The other good news is student loans can actually be uses to strengthen your credit score if you pay on time. Student loans are considered “installment” accounts, just like auto loans and mortgages, so they don’t carry a penalty for big balances. The key is to make those payments on time every month.
Leonard says student loans are often the first major financial hurdle people face in life. In Alabama, the average student graduates with more than $26,000 in debt. She has four tips for anyone tackling student debt:
Understand Your Debt
Make sure you know all of the loans you have. She says more often than you might think, loans can get lost in the consolidation process, or students might miss a notice if they move after graduation. There is a 15% default rate on student loans within the first three years, which she credits to lack of awareness. She suggests searching the National Student Loan Data System at https://www.nslds.ed.gov/nslds_SA/.
Delay Your Repayment
If you don’t have a job yet, many student loans will allow you to avoid repayment until you’re employed. If you don’t have a job after graduation, contact each of your student loan companies and ask about their forbearance policies. That could help cut down your expenses while you look for a job.
Build Your Payment Plan
Prioritize all of your loans. Consider other debts like car loans and credit cards when building your repayment plan. Leonard recommends focusing on the debt with the highest interest rate. She says make sure you are making minimum payments on all of your loans, but make the loan with the highest interest rate your top priority.
Contact Your Lender
If you are struggling to make payments, be proactive and contact your lender. They are far more likely to work with you if you see trouble on the horizon. She says whatever you do, don’t ignore the problem because your credit score will take a hit and you could go into default. Contact your lender and come up with a plan that will work for both of you.
Mainstay Financial Locations:
2810 East Cervantes Street
Pensacola, FL 32503
1120 Hillcrest Road, Suite 1B
Mobile, AL 36695
Fax: 251-607 7031