With the cost of education rising faster than inflation, degree holder aspirants often resort to private student loans to pursue their goals. A private student loan is actually considered a good debt because it increase an individual’s earning capacity. Just like any other debt, it needs to be managed properly to prevent negative consequences.
One wise way of managing your student loans is by paying off the interest while you’re still in school. This amount will vary depending on how much money you borrowed. For example, a $10,000 private student loan will generate on average approximately $80 in interest per month. In order to avoid the accrual of this interest, you can arrange with your student loan provider for an interest-only payment scheme while you’re still studying. Unpaid interest accrues while the borrower is in school. Upon entering full repayment, all accrued and unpaid interest is capitalized (or added) to the principal balance once at the time repayment begins.
As more and more students avail of loans and become financially liable at a very young age, it is critical that financial literacy is inculcated in them. It is not uncommon for students to work while studying. Instead of using your money to shop or buy a car, why not direct them towards paying the monthly interest of your student loan debt? This will not only prevent you from getting buried in student loan debt, but also hone your skills in budgeting and wealth management which can have a long-term impact on how you will handle your finances in your lifetime.
You can also consult educational financing institutions, such as Cedar Education Lending on how to manage student loan debt effectively, before and after graduation. These companies offer repayment schemes such as private student loans consolidations. By combining several private student loans from a number of creditors, a private student loan consolidation plan can lower interest rates, extend payment terms and result in lower monthly payments.