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College Students and Recent Grads, News

Top 6 Things to Know Before Taking Out a Student Loan

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Landing that college acceptance letter is only half the battle when it comes to attending a university — you still need to find a way to pay for it.

With something like 40 million Americans juggling student loan debt, it’s no surprise that paying for school with a loan is a popular way to handle those fees. Before getting too far down the rabbit hole, here are six things to keep in mind:

1. Your loan will either be federal or private

Loans come with different terms and conditions, but in general a student loan will come in one of two forms — federal (funded directly by the government) or private (from individual lenders like banks and credit unions.). Federal student loans tend to come with across-the-board incentives like fixed interest rates and the ability to restructure payments based on income, but with a little research, you may be able to find a private loan with lower interest rates. However, it’s better to maximize your federal student loan options first before tangling with private loans.

2. Short means less, long means more

When it comes to repaying your loans, the faster you agree to pay off your debt, the more you’ll likely pay per month, but you’ll be spending less in interest over the life of your loan. Conversely, if you decide to make smaller payments towards your debt over a longer period of time, you may end up paying significantly more interest over the years.

3. Get to know your grace period

A grace period is the set of time you can wait to make your first loan payment. Unfortunately, not all loans come with the same grace period, which means you need to be sure to know the due date of your first payment. Grace periods are helpful if you’ll need time to get a job and earn a couple paychecks before making payments. But you don’t have to wait until the grace period is up to make your first payment. Making payments during the grace period can offset some of the interest accruing.

4. Deferment and forbearance may help in times of need

Again, every loan is different, but it’s not uncommon for you to need to take breaks in payments from time to time. Forbearance and deferment can help in these situations. Forbearance, for example, allows you to either stop making loan payments or have them reduced for a certain amount of time, but interest will likely still accrue. Deferment allows you to stop making payments on both principal and interest for a number of specific reasons. The government may subsidized your interest while in deferment if the loans are Federal Perkins, a Direct Subsidized Loan or a Subsidized Federal Stafford Loan. Check with your loan to see if one or both is available to you, and what the circumstances must be to qualify. 

5. There’s a difference between refinancing and consolidation

Besides getting debt free, you probably want to focus on one other factor: paying less each month. Two options to help with this are consolidation and refinancing. Consolidation is the act of combining all of your loans into one payment with an interest rate that will likely be an average of your existing loans. Consolidation simplifies your payment process, but doesn’t necessarily reduce your debt burden. Refinancing uses a new loan (hopefully with a lower interest rate) to pay off your existing debts. You’ll then make a single payment per month towards your new loan. The lower interest rate can help you dig out of debt faster. You’ll need to do a little research to determine which is best for your particular situation. (This piece can help you decide if refinancing options might be good for you, while this one talks more about debt consolidation, and the pros of going that route.)

6. Is Taking Out a Student Loan Even Worth It?

It’s not an easy question to ask yourself, but it’s one worth considering — will the amount of money you’re projected to make from your career be enough to pay off your student loan debt? For example, some lower paying jobs may not actually end up being worth the price you’ll pay in the end. Before you sign on to any loan, do the math to determine how long it will take you to pay back that loan at the average salary you’re meant to make in your job, and determine whether or not you’re willing to be in debt for that amount of time.

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Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Cheryl Lock
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Cheryl Lock is a writer at MagnifyMoney. You can email Cheryl at cheryl@magnifymoney.com

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College Students and Recent Grads

Can You Really Get Rid of Student Loans by Leaving the Country?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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A college degree that didn’t lead to your ideal job. A stack of student loan bills you can’t afford. A collections agent blowing up your phone.

For any of these reasons, you might be seeking a way out — even out of the country. Leaving the U.S., however, might not solve your education debt.

Can you escape debt by leaving the country?

The short answer is no. The debt will still be there.

There’s no statute of limitations on federal loans, meaning that you’d be responsible for repaying your debt when or if you return to the U.S.

For private loans, on the other hand, state laws do put limitations on lenders’ ability to sue over your old loan debt. However, these statutes last years and won’t stop collections agencies from contacting you, regardless of where you reside.

If you abandoned your debt, you would need to establish an income and credit report in your new country and otherwise lay down roots.

But just because you could abandon your American debt doesn’t mean that you should.

For one, you have a moral dilemma on your hands: You borrowed money to fund your education, and although the borrowing and repayment process might seem unfair, you did agree to repay it.

But even if that’s not an issue, you still have to ask yourself whether you’re willing to face the consequences of creating zombie debt that will hang over your head.

Consequences of a move overseas to escape student loans

It’s impossible to say whether you’d need to look over your shoulder, wary of creditors on your tail. They might not have the willingness or the wherewithal to track you down.

You also can’t be arrested for your debt, and, no, your passport isn’t at risk. Still, the punishments of ignoring your debt can be severe. Some effects include:

Your loan balance will balloon

Just because you disappear doesn’t mean your debt will too. Quite the opposite — it’ll continue to grow. Interest will accrue and capitalize onto your balance each month that passes without payment.

If you skip town $40,000 in the hole at 7.00%, for example, your balance would collect about $16,000 worth of interest after 10 years, and almost $35,000 after 20 years.

Your credit score will tank

Although your credit score won’t follow you overseas, it will only worsen while you’re away.

After all, more than a third of your score’s composition rests on your payment history. By ignoring your payment due date, your score will take a nosedive. And when you default, the status will show up and stay on your credit report for up to seven years.

With such poor credit, you’ll have a hard time after your stateside return borrowing money in any form, including a home mortgage, car loan or credit card.

Your wages could be garnished — and worse

Once you default on your federal loans — that is, fail to make a payment for more than 270 days — your servicers could send your debt to a collections agency, where it will incur more fees.

The Department of Education could then take the following measures to collect your debt:

  • Treasury offset: The government could withhold any federal money you were set to receive, such as income tax refunds and Social Security benefits. Your driver’s license and/or other state-issued licenses could even be forfeited.
  • Wage garnishment: Your collections agency could require your employer to hand over 15% of your paycheck to put toward your defaulted loan. If it’s unable to take your income — perhaps because you’re self-employed — then you might face a lawsuit from the Department of Justice.

Private lenders vary in their practices, but you can bet they’ll farm out delinquent loans to their debt collection agencies. They can also sue you to secure a percentage of your income.

Your cosigner could be left hanging

Federal loans are borrowed in the student’s name, so you — and only you — are on the hook for them. The family you leave behind in the U.S., however, might have to deal with phone calls or mail from collections agencies.

Private loans are a different story. In all likelihood, you asked a family member to cosign your loan as an undergraduate, since about nine of 10 private loans are cosigned.

By leaving your debt and country, however, you’d be passing the buck to your cosigner. Mom, Dad or whoever else could be legally responsible for repaying your debt, potentially putting a stranglehold on their finances.

Can you even move to another country with student loan debt?

Just because you shouldn’t leave the U.S. to flee your student loans, however, doesn’t mean you’re trapped inside the country until your debt is repaid. If you’re motivated to live abroad for reasons other than escaping your education debt, consider that you could take your debt along for the ride.

You might make progress in repayment, for example, if you can earn an American salary but reside in a country with a lower cost of living.

No matter where you decide to shack up while repaying your education debt, consider these tips.

Explore repayment plan options

Whatever ails your loan situation so much that you’re considering quitting your repayment, know that there are debt relief options, including:

Income-Driven Repayment (IDR)

On the federal loan front, consider switching repayment plans. IDR would allow you to limit your monthly payment amount to a percentage of your discretionary income, making it a good option if you’re out of work or climbing the career ladder from the bottom. Keep in mind though that when you lower your payments and extend your loan term, your debt grows because of accruing interest.

Unfortunately, private lenders generally don’t offer IDR, but they could be willing to adjust your repayment if you fall on hard times.

Deferment or forbearance

There are more than a dozen types of eligibility for deferment and mandatory forbearance on federal loans. These measures pause your payments while you get back on your feet. To cure your wanderlust, you could even defer your loans for up to three years by joining the Peace Corps.

Private lenders’ protections are typically less comprehensive, so talk with your lender about what it offers.

Student loan refinancing

You’ll need good credit and steady income (or a cosigner) to qualify, but student loan refinancing could solve several of your repayment problems simultaneously. It could consolidate your debt into one new loan, potentially lower your interest rate and give you the power to choose your new (private) lender.

Just be aware that by refinancing federal loans, they’ll be stripped of the federal safeguards that come with them, such access to IDR and some loan forgiveness programs.

Budget for travel — and loan payments

Once you know how much you need to spend to keep pace with — or, better yet, attack — your loan balance, it’s time to budget. This step is crucial if you’re planning to live abroad. A budget will serve as your roadmap, helping you to estimate the affordability of the life you want to lead and the debt you’re due to repay.

Cutting U.S. expenses like apartment rent and utility bills is a great start. You can also maximize your money by choosing the right country. You might have designs on visiting Scandinavia, for example, but then find that Southeast Asia is more in your price range. Nomadlist is an excellent resource to help plan for potential monthly costs on a city-by-city basis.

Increase your income

You can budget until you’re blue in the face, but eventually you’ll run out of expenses to trim. Give yourself more wiggle room by increasing your income at home or abroad.

If you’re fortunate enough to work remotely and take your American salary with you, you might already have the cash flow necessary to travel cheaply and still pay down your debt. You might also seek side gigs like teaching English as a second language in another country.

Keep your American bank account

Even if you’re not sure when you’ll return to the U.S., keeping your American bank account will ease your student loan payments. You won’t want to deal with foreign transaction fees, for example.

Additionally, by keeping your domestic checking account, you can score an interest rate reduction with some lenders and servicers by signing up for autopay.

You can repay your debt and still wander the world

Leaving your home country for a clean slate elsewhere is an age-old strategy. But unless you’re planning to leave the U.S. permanently, it could wreck your student loan debt situation.

Before you book a flight, consider the consequences of wandering the world without a repayment plan. Whether you choose to live in the U.S. or abroad, there are plenty of ways to get back on track. You just have to look for them.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Andrew Pentis
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Andrew Pentis is a writer at MagnifyMoney. You can email Andrew here

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College Students and Recent Grads, Reviews

Review: SunTrust Custom Choice Loan

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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SunTrust offers students a good option to finance their education with its Custom Choice Loan. Interest rates are fairly low, students may apply with a cosigner, and it comes with several repayment options. As a bonus, SunTrust offers graduates a 2% principal balance reduction as long as students graduate with at least a Bachelor’s degree.

 

Details of SunTrust’s Custom Choice Loan

The minimum amount you can borrow is $1,001 and the maximum amount you can borrow is $65,000. The total amount of Federal and private student loan debt you take out per year can’t exceed $150,000. You can choose a 7- or 10-year repayment term, and a 15-year term is available for borrowers taking out $5,000 or more.

Fixed APRs range from 5.35% to 14.05%, and variable APRs range from 4.37% to 13.38%.

You have four choices of repayment plans:

  • Immediate Payment – There’s no grace period as you begin full payments while in school
  • Interest-only Payment – You pay the interest that accrues on your balance while in school
  • Partial Payment – Available on loans $5,000 or more, you can make payments of $25 per month while in school
  • Full Deferment – You get a grace period of six months when you choose this option, and you’re eligible for deferment as long as you’re enrolled in school part-time at an approved school (this option is the closest to how Federal student loans function)

The interest rate you get approved for is based on your credit history, loan term, amount requested, and other information provided on your application.

A 0.25% interest rate reduction applies if you set your loans to autopay, and SunTrust customers benefit from an additional 0.25% reduction if they pay through their SunTrust bank account.

How Does the Custom Choice Loan Compare to Federal Student Loans?

Before applying for the Custom Choice Loan, you should exhaust all of your federal student loan options first. Make sure your family fills out the FAFSA form to see what you might be eligible for. Federal student loans have lower fixed interest rates, and come with more benefits than private student loans do. These benefits will help in case you hit a rough patch with your money.

For the 2018 – 2019 Academic year, Direct Subsidized and Unsubsidized Loans have a fixed interest rate of 5.05%. That makes the 5.35% fixed APR and 4.37% variable APR of the Custom Choice Loan comparable. However, those are the lowest possible APRs available, and if you don’t have excellent credit, you may not be eligible to receive them. Variable rates are also subject to change, which means they can increase over the life of your loan and become more expensive.

SunTrust doesn’t have an origination fee with its loan, but the Direct Subsidized and Unsubsidized Loan has a 1.062% disbursement fee from October 1, 2018 through September 30, 2019.

SunTrust’s APRs aren’t horrible, though. If you can, apply with a cosigner who has better credit, as you’ll be eligible for lower rates. You want to get as close to Federal interest rates as possible to get the best deal.

[7 Things You Need to Know about Private Student Loans]

Eligibility Requirements

You must be a U.S. citizen or permanent resident to apply. A majority of four-year public or private colleges are eligible – you can check eligibility on the first page of the application.

If your credit history isn’t sufficient enough, you can apply with a cosigner, and there’s a cosigner release option available after 36 consecutive, on-time payments.

You must also be the legal age of majority when completing the application. Applicants residing in Iowa or Wisconsin aren’t eligible for this loan.

[How to Tell if Your Loans are Federal or Private]

Application Process and Documents Needed

You can apply online by yourself or with a cosigner. After your application and credit (a hard credit inquiry is used) are reviewed, you’ll be presented with your loan options. If you choose to move forward with the loan, you’ll be provided with a list of documents you need to upload.

Once you’ve submitted everything, an Approval Disclosure will be sent to you for acceptance. You have 30 days to accept the terms of the loan before they expire.

Upon acceptance, SunTrust will contact your school to request certification of the loan, as you’re only allowed to borrow enough to cover your education expenses. This also ensures you don’t take out more student loan debt than necessary.

Once everything is complete, you (and your cosigner, if you applied with one) have three days to back out of the loan. After that, the loan is finalized, and the funds are sent directly to your school.

Have these documents ready to submit when applying:

  • Proof of income – the student or cosigner must show proof of positive income in the form of a recent W2, paystub, or tax return
  • Photo ID
  • Proof of residency may be required if Photo ID isn’t sufficient

The Fine Print

There are no origination, application, or prepayment fees for this loan. If you’re 10 days past due on a payment, you’ll be charged 5% of the unpaid amount as a late fee.

The minimum loan amount is different in certain states: $5,001 in Alaska, $3,001 in Colorado, $2,501 in New Mexico, $5,101 in Oklahoma, $5,001 in Rhode Island, and $3,701 in South Carolina.

[Student Loan Disbursement 101]

Repayment Assistance Options

American Education Services is the loan servicer for SunTrust. If you experience any difficulty repaying your student loans, you’ll have to contact them for repayment assistance options. You may be able to apply for a deferment, forbearance, or interest-only payment for an extended period of time.

Pros and Cons of the Custom Choice Loan

Pro: If the borrower dies, then the balance of the loan may be forgiven as long as SunTrust is contacted and provided with proof of death. (If the cosigner dies, the student remains responsible for the loan.) Students who become permanently disabled can apply for a loan discharge as well.

Con: The loan isn’t available to those living in Iowa or Wisconsin, and minimum loan amounts differ in six states. Make sure that doesn’t apply to you in case you’re not looking to borrow a large amount.

Pro: The Custom Choice Loan fittingly gives you a few choices when it comes to loan repayment options. Choosing partial payments or interest-only payments can help lessen the amount of interest you’ll pay over the life of your loan, and are easier to manage than going into immediate repayment.

Pro: SunTrust offers a Graduation Reward where 2% of your principal balance will be reduced, provided you graduate with at least a Bachelor’s degree. The principal balance is based off the net total of all disbursements you receive from SunTrust.

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Private Student Loan Alternatives

Not eligible for a loan with SunTrust? There are many other private lenders offering student loans, such as Citizen’s Bank and Sallie Mae.

Citizens Bank: You can borrow up to $90,000 and your combined Federal and private student loan debt can’t exceed $120,000. Fixed APRs range from 6.39% to 11.65%, and variable APRs range from 6.14% to 11.40%. Repayment terms offered are 5, 10, and 15 years.

Citizens Bank (RI)

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Sallie Mae: One of the most well-known private student loan lenders, Sallie Mae has a Smart Option Student loan with fixed APRs ranging from 6.25% to 9.16%, and variable APRs ranging from 4.00% to 9.04%. You can borrow up to the cost of attendance, and this loan comes with a Graduated Repayment option.

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It’s also worth checking with your bank or local credit union for their rates. If you or your cosigner have an existing relationship with a bank, that could help you secure lower rates.

Are you afraid of your credit being negatively affected if you apply with too many lenders? As long as you complete applications within a 30-day window, then the credit bureaus will count all inquiries as one inquiry, ensuring your credit doesn’t take a huge hit. Shopping around for the best deal is worth the effort with student loan debt being such a burden. Lower interest rates will make your loan more affordable.

A Solid Option if You Have to Use a Private Lender

The SunTrust Custom Choice Loan is a solid option for students requiring more financial assistance than what the Federal government can provide. SunTrust customers benefit more with the 0.50% interest rate deduction, and no one can complain about receiving a 2% principal reduction on their loans upon graduating.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Erin Millard
Erin Millard |

Erin Millard is a writer at MagnifyMoney. You can email Erin at erinm@magnifymoney.com

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