In a few hours, we’ll close out 2014 and ring in the New Year. While New Year’s Eve is all about champagne, noisemakers and celebration, tomorrow marks the beginning of New Year’s resolutions. That’s a decidedly more serious topic, especially if your plan is to head back to school.
People often splurge to kick-start their resolutions, only to lose steam by in the months that follow. Usually, that’s not a big deal, but it can be if you’re borrowing student loans to complete your degree. Like your unwanted gym membership from last year, student loans stick around, and they can really cost you if managed incorrectly.
If returning to school is your goal for 2015, great, let us help you achieve it in the smartest financial way possible. Here are three ways nontraditional students can do just that:
- Understand the difference between federal and private student loans: If you’re eager to restart your education, you may be tempted to sign up for any loan that will help you get started. That’s a mistake.
Student loans fall into two buckets: federal loans and private loans. Federal loans come from the government. These feature fixed interest rates and entitle you to specific repayment benefits, such as alternate payment plans, postponements and loan forgiveness options, should you qualify.
Private loans come from private lenders, like a bank or credit union. The details for these debts differ, which can make things tricky for borrowers.
Private loans may come with repayment benefits, or they may not. If they have options, you may have to pay to use them. Simply put, many variables exist with private loans, including their interest rates.
If you cannot take out enough money in federal loans to cover your education costs, private loans can be a viable option. However, be sure to exhaust your federal options first, and then shop around for the best deal.
- Get any previous loans in order: If you borrowed loans previously to attend school, find out their status in the National Student Loan Database System. You may need to address some issues that pop up before you can take on additional debt, such as if you have federal student loans in default.
Borrowers with defaulted loans are ineligible for additional federal aid. They may have trouble getting state aid as well. In addition, a loan default is one of the toughest marks to have in your credit history.
So, if you end up turning to private loans, you’ll likely need a co-signer and even then, the loan’s interest rate and other terms may not be favorable due to your history.
However, don’t cast aside that resolution yet. You can pull your loan out of default in a few different ways, including loan rehabilitation. To rehabilitate your loans, you need to make nine on-time monthly payments to your loan holder. After making six payments, you will regain federal student aid eligibility, and once you complete all nine, your loan will be sold to a new lender and the default will be removed from your credit history.
As long as this is completed before the last day of classes for the school year, you can usually get financial aid for that entire year retroactively. Rehabbing your Study loan may delay the start of your actual resolution. However, by doing so, you’ll have the maximum and best financial options available to you when you do enroll.
- Choose your program wisely: Since it’s the resolution time of year, expect to hear and see advertisements for degree programs all over the place. Your mission is to know what you’re getting into before signing up for any of these.
Sure, it’s easier to call that phone number on the TV or grab that flier off the subway, but that advertised school may not make sense for you, financially or otherwise.
Every student’s plan should always be to borrow responsibly for the best education. If you’re returning to school, that could mean taking an alternate route to your degree, like attending community college to complete your lower-level requirements – just make sure they’ll transfer. You could also look into online programs, but again, do your research.
Ultimately, these options may cost you the immediacy of a new year’s resolution. However, that won’t matter when you’re successful in 2015 and beyond.
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