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Article originally published September 28th, 2021. Updated December 6th, 2022.
While student loan debt figures have declined slowly since they hit a high in 2010 and 2011, around 70% of those graduating with a four-year college degree do so with at least some debt related to their education. As of 2022, nearly 43 million people carried federal student loan debt, with a balance of more than $37,787 on average.
Getting a degree of any kind can be expensive, and not everyone can avoid taking out debt to do so. However, by avoiding some common mistakes, you can find the best student loans for your needs and manage them in a way that supports a better future financial outcome.
It’s critical to understand how student loans work so you can make an educated decision when taking one on. The federal government offers four types of Direct Loans:
The first step in choosing the right loan and repayment plan is doing your research and picking the loan that best meets your needs. With most student loans, you don’t start paying off the loan until you’re out of school. Then, you may be able to choose from several repayment plans:
You should also consider the interest rates for loans before you agree to them, as this plays a huge role in how much you pay on the loan over time. While the U.S. Department of Education has extended COVID-19 relief of 0% interest on many student loans through December 31, 2022, normal rates for loans disbursed from July 1, 2022, through July 1, 2023, are:
It’s tempting to get as much as you can from financial aid and loans. But borrowing more than you need to pay for college can leave you with big debt later that’s hard to repay.
Reduce how much you need to borrow by understanding financial aid vs. student loans. Any time you can get money to pay for education that you don’t have to pay back, that’s probably better than taking out a loan.
If you do end up with more student loan money than you need, consider paying the extra amount back right away. Cutting down on your balance can reduce how much interest you pay over time, saving you a lot of money. It can also decrease the impact of student loans on your credit—find out how bad student loans affect credit.
The only time you don’t need a plan to repay your student loan is if you really don’t owe them. In that case, you should learn how to dispute student loans instead.
For loans you know you owe, create a plan of action that:
Your first step in finding student loans should be to complete the Free Application for Federal Student Aid. The FAFSA helps you know what federal financial aid and loans for which you might be eligible.
If you’re looking for private student loans, you can check with local banks, private lenders and online lenders. Or, start with our list of student loans to check out.
Ensure you’re prepared to take on student loan debt before you sign on the dotted line. Do the research so you can choose the right loans and repayment plans. Also, have a proactive plan for paying off the debt, so it doesn’t set you up for financial stress later in life.
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