Most students in the US find that they have to borrow money to fund their college education. While taking student loans may be a typical part of attending college, it is important to look for ways in which you can lower the overall cost of your student loan. This means looking beyond the obvious factors such as looking for lower interest rates and flexible payment terms. In addition to these, there are several other things you can do to bring down the cost of your student loan.
Exhaust All Scholarship & Grant Opportunities First
It makes sense to explore all scholarship opportunities first and only apply for loans after you have exhausted all free money avenues. The advantage of using scholarships to fund your tuition fees is that you do not have to return this money. Think of it as a gift that you have earned and is yours to keep.
You can find hundreds of scholarships with a simple online search. When looking for free money, don’t just look at the obvious opportunities. Do an exhaustive search and you will find scholarships for reasons that you may not even have thought about.
Start by listing down your personal details including your culture, religion, and even your height. Then list all of your skills and hobbies. You’d be surprised to find that there are awards being offered for each of these attributes. Religious and cultural organizations often offer financial assistance to students who belong to their faith or culture. Other organizations offer financial aid for reasons that range from knowledge of a foreign language to making the most creative peanut butter sandwich and even being above a certain height.
The best part is you can apply to all scholarships that you qualify for and you can accept all the money that you win. The more you win by way of scholarships, the less you will have to borrow, which makes any time you spend exploring opportunities more than worth it.
Maximize Your Federal Student Loans First
Once you’ve exhausted all free money sources, you will have to consider borrowing the shortfall that you need to cover your tuition. When it comes to student loans, there are two main types—federal student loans and private student loans.
Federal student loans are offered by the federal government and should be your go-to option. Federal loans have lower interest rates, which are fixed for the life of the loan so you know exactly how much your monthly payments will be after you graduate.
Overall, federal student loans work out much cheaper than private loans, which have higher interest rates and rather rigid terms and conditions. It is best to avoid borrowing from private lenders altogether if you can. Only borrow what you need.
Repay Your Loans While You Are Still In School
Most lenders do not expect you to start paying back the money until a few months after you graduate. This period is known as the grace period. It allows you to finish your education and also gives you a decent amount of time to find a job and start earning.
While knowing that you are not expected to make any payments till after you graduate and start earning takes the stress off you, it does add to the cost of the loan over the long term. If you are looking to cut down on this overall cost, you can opt to make monthly payments, however small, while you are still in school and continuing on during the grace period. When you repay your loans this way, your accrued interest is reduced substantially, lowering the overall cost of your loan.
If you choose this option, you must give standing instructions to the lender to pay all early payments towards the principle and not the following month’s interest. This helps to reduce the principle and the accrued interest. If the early payment is put towards the interest, the principle remains the same and continues to accrue interest, giving you not much benefit.
Make All Monthly Payments On Time, Every Time
Timely payments are an important factor in lowering the cost of your student loan. Most lenders charge exorbitant late fees. If you are late with even one payment, you will have to unnecessarily pay a huge late fee fine, which adds to the cost of the loan. You could end up adding hundreds or even thousands of dollars to the total cost of your loan if you miss more than one deadline.
Making all monthly payments on time will also help you maintain a good credit rating, which will qualify you for lower interest rates on any loans that you take in the future.
One way to make sure that all your monthly payments are made on time without any oversights is to sign up for auto-pay and make sure that you have the necessary funds in your bank account when the payment is due.
Combining all of the above tips will help you bring down the cost of your student loan to the minimum amount possible.
The Right Loan Fit
Another thing that helps is finding the right student loan. Every student’s need is different, and so there’s no one-size-fits-all loan option. An ill-fitting student loan can cost in the long run, so it’s best to do your research up front and find the right one for your situation.
College Raptor can help there. With our free Student Loan Finder you can compare lenders and interest rates side by side.