How Making Interest Payments Can Save You Big Money Later

If you’re funding part of your college education with student loans, you may occasionally receive statements, even though no payments are due. Ever wonder why?

Those statements are important, and understanding why can save you money in the long run.

They notify you that, even though you don’t have to make payments while you’re in school, interest is adding up on your loans — every single day. If this interest is not paid as it accrues or before your loans enter repayment (usually six months after you leave school), it will be added to your principal balance. If it is added to your principal balance (a process called capitalization), you will then owe more than you originally borrowed. And, the now larger principal balance starts to accrue interest on a daily basis, so you will be paying interest on the accrued interest.

How can you minimize this increase to your loan balance? If you manage to earn or save some money while you’re in school, you can make monthly payments that pay down the interest as it accrues.

Here’s an example of how making small payments every month could save you more than $1,500 over the full life of student loans.

Note: The information below is an example only. Your payment amounts will depend on the types of loans you receive and the interest rates and the repayment terms on those loans.

Making-Interest-Payments-SaveYouMoney-infographic

Download a PDF of this infographic.

Establishing Financial Habits

Making everyday spending decisions—like whether to order pizza or go to the Caribbean for Spring Break—in college, helps you establish the financial habits you’ll use in the future.

Although eating out every Friday night sounds like a good thing, it may be worth it to give up that treat in exchange for savings of thousands on your future student loan payments.

By: Iowa Student Loan

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A Monthly Budget Can Help You Repay Loans

Low on cash and wondering how you will start repaying your student loans?

Make and stick to a budget to make your monthly payments. Check out our budget calculator for more help.

If you are not out of school and in repayment, we have other calculators to help you succeed:

If you have trouble balancing your budget, check out these tips to reduce your spending:

By: Iowa Student Loan

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Know Your Student Loan Servicer

KnowYourStudLnServicer

As you begin your life after college, you likely have several different responsibilities, from a new job to managing your own insurance and other activities. One important task is to get to know the servicer or servicers for your student loans.

What Is a Student Loan Servicer?

Your student loan servicer is the organization that handles customer service, including collecting and tracking your payments, for the loan. Depending on the number and type of your student loans, you may have one servicer or several.

Why Do I Need to Know Who My Servicer Is?

You need to be aware of your servicer for several reasons.

  1. You will soon need to start repaying your student loans, and you need to know where and when to send payment. You may also want to set up features, such as an online account and automatic withdrawals, that will help you manage your student loan payments.
  2. Your servicer can help you understand and choose from available payment plans. Most borrowers enter repayment under a standard payment plan that pays off the loan in equivalent monthly payments over the full term of the loan, but you may be able to choose a different plan that works better for your current situation. If you are entering the workforce at less than what you expected to earn, you may be able to make lower payments based on your income or according to a preset formula at first. If, on the other hand, you have the chance to make higher payments now before you have additional family, car and housing expenses, work with your servicer to determine the best way to pay down your debt.
  3. Your servicer may offer assistance if needed. If you don’t have or lose your income or you face another difficulty that makes student loan repayment challenging, you may be eligible to postpone payment. You will need to work with your servicer to understand your options and choose the one that works for you. Be aware that interest continues to accrue on student loans during repayment, and unpaid interest may capitalize, or be added to your principal balance, at the end of assistance. In certain cases, you may be eligible to have some or all your student loan debt forgiven, and your servicer can help with that as well.

How Do I Locate My Servicer?

Your servicer may be the entity that provided your loan or it may be a separate entity that acts on behalf of the current owner of the loan.

  1. Determine if you have federal student loans. Often called Stafford or Direct loans, these loans are provided by the federal government and were likely included in the financial aid package you received from the college you attended.
  2. Use your FSA ID to log in to the National Student Loan Data System. If you filed a Free Application for Federal Student Aid after May 2015, you probably created an FSA ID then. If it’s been some time since you filed a FAFSA, you may need to visit fsaid.ed.gov to create an ID. Then go to nslds.ed.gov to log in and view your federal loan information, including the servicer.
  3. If you have private student loans you obtained from a bank, credit union or other lender to pay remaining college costs after your financial aid, refer to the information your lender provided when you took out the loan and progressed through school. As the due date for your first payment approaches, you will likely receive communications from the lender or servicer about how to make your payment.

If you can’t locate a private student loan servicer, contact the entity that lent you the money or your financial aid office. You may also be able to see your lender or servicer name on your credit report (remember to access a free report at annualcreditreport.com).

By: Iowa Student Loan

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Decision-Making Tips for Student Loan Debt

When available financial aid and federal student loans are not enough to cover the total college costs, many families turn to private student loans. These loans can be a useful way to cover the gap, but they are not all created equal.

When you are considering private student loan debt, use these decision-making tips.

Understand how student loan interest accrues.

  • Student loans accrue interest on a daily basis. Even if the borrower is not required to make payments while in school or for a period of time after leaving school, interest is accruing, so the repayment amount is more than the original loan amount.
  • Capitalization, or the addition of accrued interest to the principal balance, occurs in specific circumstances. According to the terms outlined by the loan’s credit agreement or promissory note, any unpaid interest will be added to the principal balance at specific times. When unpaid interest is added to the principal, interest begins to accrue on new balance, meaning that interest will be paid on interest.
  • Generally, payments are applied to any unpaid, outstanding interest with any remaining payment amount going toward principal. If a payment is not enough to cover all outstanding interest, the unpaid portion of interest is carried over to be paid by the next payment.
  • Increases to the loan balance may be prevented by payments that at least cover interest any time they are not required, such as while the borrower is in school. Most lenders allow prepayment of any amount without penalty.

Know your comfort level with interest rates.

  • Would you prefer a fixed or variable rate? A fixed rate is set for the life of the loan regardless of market conditions, helping ensure payment amounts remain constant. A variable rate may go up or down, sometimes dramatically, during the life of a loan, causing corresponding changes to payment amounts.
  • Is it important to know the interest rate before submitting the application? Some lenders provide only a range of available rates before the loan application is processed; others specify the criteria to receive specific rates. In either case, the borrower is able to decline a loan and reapply elsewhere if not satisfied with the rate received.

Be aware of fees and underwriting and credit criteria.

  • Read any information about what types of fees are assessed and when. Will an origination fee be charged when the loan is received? When do late fees kick in?
  • These fees are separate from the interest rate. An origination fee is a one-time expense; late fees are only assessed for payments made after the due date. Interest is charged on the balance of the loan until it is paid off. Compare the annual percentage rate (APR) between loans for a more accurate picture.
  • Some lenders publish more information about their underwriting and credit criteria than others do. If you are unable to find details about the types of borrowers who qualify for loans or specific rates, contact the lender for more information.

Some loans carry benefits for the borrower or cosigner.

  • Borrower benefits, such as a reduction in interest rate or the ability to release a cosigner from payment obligation, are sometimes earned by making a certain number of on-time payments, setting up automatic payments or another qualification.
  • Make sure you understand all eligibility requirements for benefits, including reasons for losing them. A payment received even a day late could be enough to end benefits.

Consider the broader picture.

  • Beyond the specifics of a particular loan, think about the lender. You or your student will likely be working with this lender for many years after leaving college while repaying the debt. Does the lender service its own loans, and does it have a good reputation for customer service?
  • Other considerations might be whether the lender is focused solely on student loans or is likely to try to market other items like credit cards to you or your student in the future, as well as whether the lender reinvests in the community through employment, nonprofit endeavors and education about student loan debt and products.

By: Iowa Student Loan

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Benefits of Summer Employment

As the school year ends once more, many students will start thinking about summer vacation and all the things they can do to fill up those sunny days.

For some this means actual vacation and a fun trip somewhere with family or friends. For others, this could mean activities around the community or a weekend road trip. For many, this means a summer job, and finding that perfect mix of work and fun.

Having a summer job is a great benefit no matter your age. For younger high school students, it’s a great way to start earning some extra cash and building some employment experience. For older students closer to graduation, this could be a time to explore future job opportunities and to save some money toward college expenses.

No matter your stage in the game – here are some great benefits to summer employment and the best ways to prepare.

Start early. If you want more than just a summer job, start early and make some connections. You could use your summer work experience as a job shadow or internship in a career field that interests you. Use your summer to experience a day in the life of a potential future career. Talk with your school counselor about local connections, or contact a local business that interests you about summer openings.

Experience. Even if your summer job doesn’t end up being in a field or industry that truly holds your passion, any work experience can be meaningful. You’re starting to build employment history and you’re going to learn about responsibility, time management, teamwork, and maybe even leadership. These are all important skills to develop and will help you when you start looking for work in areas that peak your interest.

Save. Summer jobs are a great opportunity to put some money in the bank for college. You don’t need to save every penny, but a good chunk going towards savings can save you a lot when it comes time to look at college tuition, books, or apprenticeship and job training programs. Try and save 30-50% and get a jump start on the future.  The more you are able to save, the less you have to take out in student loans and the more options you’ll have in planning your future.

Balance. With all that said, be sure and find balance. Because the saying “You’re only a kid once” is very true. Don’t work all summer long and forget to have fun. Life is all about balance and that’s a good skill to learn young. Take a weekend road trip. Go on vacation with your parents. Do a movie night, hang out with your friends, and be a kid while you’re gaining some work experience.

By: Iowa College Access Network

This is Contributed Content. Any opinions, advice, statements, services, offers, or other information contained in Contributed Content are solely those of the respective author(s) or contributor(s) and do not necessarily state or reflect the opinion of Iowa Student Loan and/or this blog. See the “About” page for additional important information about Contributed Content.

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Comparing Student Loan Options

You’ve recently determined that your child will need a student loan to help cover the remaining cost of college. You’ve probably also discovered that there are many options to choose from. What might be less obvious is that there are some big differences between those options and many providers make it hard for you to know what those differences are.

Knowing how to spot these differences can help you get the best loan for your situation and potentially avoid thousands of dollars in added costs and fees.

Key Differences:

 

  • Marketing Tactics. Many student loan providers won’t tell you the actual interest rate you will receive until you have invested a significant amount of time and provided the necessary information to apply for their loan. Instead, they advertise using the lowest rate they offer, without explaining that only a small percent of applicants qualify for it.
  • Incomplete information. All private student loan lenders are required by law to provide consumers with the annual percentage rate (APR) of their loan products. The federal government however, does not publish the APR for the widely used PLUS Loan for parents. Instead, they provide the interest rate. By not disclosing the APR, consumers often don’t see the effective rate for the PLUS Loan which is much higher than the advertised interest rate due to an upfront fee charged on PLUS Loans not included in the advertised rate.
What You Can Do:

 

  • Do your homework. Be sure to compare several different options to determine the best fit for your situation. Things to look for include: interest rates, repayment options, terms and any additional charges or fees.
  • Be mindful of advertisements including “rates as low as”. Most applicants don’t qualify for the lowest advertised rate. Instead compare the highest advertised rates. If the lender won’t tell you your rate in advance of applying than the most important benchmark to consider is the highest rate they charge.
  • Know your FICO score before applying. Most lenders of private student loans use this as a key factor in assigning your interest rate and APR. Some lenders will provide their interest rates upfront. If you know your FICO score, this allows you to learn what interest rate or APR you will receive if you qualify for their loan before even starting an application.

By: Steve McCullough
President/CEO
Iowa Student Loan

At Iowa Student Loan, we believe in providing you with as much information as possible upfront, before you even start an application. That’s why we offer a national comparison for students and families interested in our Partnership Advance Education Loan®.

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Making the Leap: Financially Preparing for College Life

The first year of college may bring a lot of new experiences, and for many, this includes the need to budget a limited income for the first time. Earnings from a summer job can provide financial help for the school year as well as the opportunity to learn how to be financially independent.

Follow these five steps to make the most of the opportunity this summer.

1. Take time to really understand the financial aid package. Make sure you have a good idea of expected aid and how much college will cost for the student as well as the parents or other financial supporters.

  • Each college provides set costs for tuition, fees, room and board, and expected expenditures like books and transportation.
  • In addition, families often face additional expenses that either add up over time or weren’t expected.
  • How much awarded financial aid is gift aid? Grants and scholarships do not need to be paid back and fall into this category. Be aware, though, that many awards are one-time gifts and are not renewable for future years.
  • Is work-study reliable? Work-study awards are dependent on the student finding a qualified position and receiving the wage and hours required to total the award. Check the college’s website for a job board or financial aid section to gather information. Social media can also provide insight on whether students are able to find adequate work-study jobs.
  • Remember that loans must be paid back, with interest. It may help to calculate an expected monthly payment for anticipated college loans and compare that to average monthly payments for a car, house or other major expenses.

2. Track spending. Keeping track of purchases for a week or a month helps indicate where and on what most spending occurs.

  • Apps like Mint and tools like banking or card statements can be helpful.
  • A pattern of where spending can be cut or reduced may start to become clear.

3. Set up a basic budget. Budgets compare income and other funds to monthly expenses to keep consumers from spending more money than they have.

  • Take into account taxes and other deductions that will be removed from gross earnings. A site like PaycheckCity can help estimate these.
  • Divide up expenses into general categories based on typical spending.
  • Consider how spending will change once the academic term begins.

4. Plan out a monthly budget. Use realistic numbers to calculate an in-school budget.

  • Don’t forget that earnings will need to cover expenses for the remainder of the summer plus the entire academic year, unless the student also works while taking classes.
  • If a school-year job with the desired hours or pay doesn’t happen, or if it’s necessary to reduce hours to concentrate on schoolwork, each dollar may have to go further.
  • If parents are contributing to expenses, how will that happen? Options include a one-time gift intended to last through the school year, a monthly deposit into a checking account, a shared credit card account for certain purchases, or another method.

5. Evaluate the results. Adjustments may be required, based on the initial budget and events that occur later.

By: Iowa Student Loan

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Building Good Credit as a Student

Credit is a tool and, similar to wielding many other types of tools, using credit can have both positive and negative results. Using credit positively can help young adults build a history that may enable them to get better terms for future credit, such as car or home loans.

Federal regulations limit the amount of credit available to teens and young adults. But, it’s difficult to qualify for loans or other consumer credit without a credit history. Here are some tips for students who want to ensure they’re building good credit.

Opt for a student card. Many national credit card companies offer a student credit card for college students, or those soon to be in college. These cards often carry more lenient requirements and low annual fees, and they may offer incentives for certain actions. For example, you may qualify for cash back for achieving certain grades or discounts on purchases.

Don’t go it alone. Work with your parents to become an authorized user on an existing credit account, like a credit card. This means you have a card with your name on it, but the account holder is still responsible for paying the bills. Be sure you understand the card issuer’s policy for reporting credit for authorized users.

Alternatively, look into credit cards that will allow a cosigner. A cosigner would be responsible for any debt if you don’t pay your own bills, so parents or other close relatives are generally the best people to ask. The cosigner must also have good enough credit to qualify on his or her own.

Create a solid work history. A steady record of income from employment indicates that you‘re more likely to repay debt over time. Generally, you need to demonstrate full-time or near-full-time employment to qualify for a credit card or other credit before the age of 21.

Make a deposit. A secured credit card allows you to make a deposit to secure a line of credit. Even if the deposit must be equal to the credit limit, using the card instead of cash and then making regular on-time payments will build credit. Some credit card issuers may offer an unsecured credit card after you demonstrate good use for a period of time.

Take on bill paying. If you share housing with other students, consider holding a lease or utility in your name. This means you will be responsible for collecting your roommates’ share of the bill each month and making the full payment from your checking or savings account. Demonstrating your ability to pay bills on time each month will help build a positive credit history.

Pay early and pay often. Once you qualify for a credit card or other consumer loan, be sure to make payments. Although you may be required to make only a minimum payment, it’s better to pay a credit card balance in full each month to minimize interest. Making more than the interest payment is also a good idea for other types of loans. To help ensure you can make payments, limit your use and carry a low balance.

Check your results. As you build credit, monitor your credit reports and scores for errors and signs of fraud. Each year, you qualify for free credit reports from the three national consumer reporting agencies from www.annualcreditreport.com. (Never pay for a credit report.)

Educate yourself. The Consumer Financial Protection Bureau (CFPB) provides resources to learn more about credit reports and scores, building credit and what to do if you suspect fraud or identity theft.

By: Iowa Student Loan

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College To-Dos for Entering Freshmen

Deciding which college to attend can be a huge relief as senior year winds to a close. Don’t forget to take care of these important items, however, as high school ends and college approaches.

Sign up for orientation. Many colleges allow you to choose between single- and multi-day orientation sessions and offer several different date selections. Parent sessions may be offered, and some colleges even offer sessions for younger siblings. Choose the option that works for you and sign up early. You may need to pay a fee for on-campus housing or make separate arrangements to stay nearby.

Take care of financial issues. Pay any remaining fees or deposits due before the first term begins. You may need to reserve a parking permit, sign up for tickets to games, pay to use the fitness or other facilities, or submit funds for food or housing. You should also review your financial aid award package and accept or decline any funds as needed.

Plan out possible course options. You may sign up for fall classes at orientation, so be prepared with a few alternative plans. First, check to see what existing credits will transfer from dual enrollment, AP or other classes. You may also want to look at recommended course plans for your specific major to ensure you enroll in the necessary prerequisites to take required classes later. If you have questions, contact your admissions or registrar’s office.

Take any required online tests or courses. You may need to take an online placement test for math, foreign language or other courses. Some colleges also have drug and alcohol education, campus-wide reading and other programs they expect all students to participate in. Review the requirements for your college and get these items out of the way early.

Enroll in special programs. Your college may offer camps or other programs that occur before fall move-in. Some departments also offer specialized programs for a fee or by application. Check out your options to see if any appeal to you. These programs can help you meet other like-minded students and establish a network before school even starts.

Connect with other students. Look on social media sites for groups of other incoming freshmen or current students to connect with. Becoming part of these groups may help you locate a compatible roommate, find others from a similar background or discover social events and activities you’d like to join.

Connect with faculty. If you plan to do lab research, initiate a specialized project or work in a particular department, take some time to reach out to relevant faculty. You may want to ask a researcher what classes you should take to become qualified to work with him or her or determine the requirements for employment at a specific position.

Finalize housing arrangements. It’s probably time to find a roommate and select your dorm preference if you don’t want to be randomly assigned. Follow your college’s instructions for online roommate matching services and choosing your residence hall. The online communities mentioned above can help you if you have questions about dining, shared spaces, room layout or student population in any of the dorms.

Get to know your campus. The college website is a good place to start. Look for information on student organizations as well as support systems like career planning, tutoring, mental health and physical health services. A video tour or campus map can help you visualize where the main buildings are. You may want to plan another campus visit either separate from or adjacent to your orientation session now that you have committed to this school.

Get to know your new community. Either in person or virtually, spend some time looking at the areas surrounding campus. Some commonly used community services include post offices and shipping centers, drugstores, grocery stores, book and supply shops, electronics stores and repairs, medical specialists and restaurants. Look for transportation options if you will regularly need to go further than walking distance from campus.

Make a list. Finally, make sure you are prepared for packing and moving. Think about what items you should purchase beforehand and transport with you to campus and which items you can pick up after arrival. Many retailers allow you to order online or select your purchases locally, and then pick them up at a store closer to your college. You may need to shop for clothes if your climate will change, and you’ll need a few basics like toiletries, bedding and towels.

See other college prep suggestions.

By: Iowa Student Loan

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Staying on Track for College Graduation

Growing numbers of college students end up staying — and paying — beyond the traditional four years in college. While college can be one of the best times of your life, the cost of extra semesters means you should do your best to stay on track.

Here is what you can do, beginning with your freshman year, to increase your chances of graduating within four years.

1. Know your graduation requirements.

  • Colleges usually have a minimum number of credit hours required for a degree; some majors may require additional hours.
  • Know which classes count toward the degree requirements.
  • Maintain good grades to ensure you meet academic progress standards. If you fall below the minimum, you may be required to take classes that don’t count toward your degree.
  • Understand which electives outside your major you need to complete.

2. Plan out academic courses now through graduation.

  • Your college may offer an online program or paper planner to help you track progress.
  • Some required courses may entail prerequisites you need to ensure you take first.
  • Follow the recommended course plan or curriculum path for your major as a guide.
  • Know which classes are offered every term and which ones are only offered in the fall or the spring.

3. Ask for assistance early and often.

  • Meet with your academic adviser before signing up for classes and any time you need to evaluate progress.
  • Go to your professors’ office hours with questions or discussion ideas.
  • Attend tutoring sessions and meet with classmates to go over work.
  • Visit the campus career center to discuss career paths for your major and plan for resumes and interviews.

4. Focus on your goals.

  • Identify your major as early as possible.
  • Avoid taking classes that provide credit but don’t count for graduation requirements.
  • Attend every class.
  • Stay ahead of your assignments and projects.
  • Check your school email and online portal several times a week.

5. Know how special circumstances affect you.

  • If you are planning to study abroad or take on an internship or co-op, understand how that affects your course plan and timeline.
  • Summer, intersession and online courses can help you gain required credits, but be sure to know how the credits you take outside your college system transfer.
  • You may be able to test out of certain classes. Investigate these opportunities and how those credits are applied.
  • Credits are often “lost” when students transfer to different schools or change majors. Before taking these steps, work with your school to determine how they affect your graduation plan.

By: Iowa Student Loan

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