Student Loans and You

July 21, 2020

I want you to imagine $1,560,000,000,000 – 1.56 TRILLION dollars. That’s approximately the annual GDP of Russia. With that amount of money, you could buy everything Thailand, Iran, and Austria make in a year and still have enough left over to purchase the entire NFL.

That massive pile of cash also represents the student loan debt Americans held in 2019.

Student loans are a serious business, and many Americans are struggling to pay them back. As this is an election year, you’ve probably heard candidates talk about their proposals to address this pressing issue.

In this article, we’ll discuss some student loan basics, as well as how myKlovr is trying to make the process easier and safer for users like you.

When to Consider Student Loans

Out of all the ways to pay for college, you should consider student loans as your last resort. Now, don’t get me wrong. Student loans, like credit cards, aren’t inherently evil or wicked. It’s just that, in general, it’s incredibly easy for young Americans to get in way over their heads with debt. Entire books have been written on this topic, so I’ll spare you the details.

Before we tackle student loans, let’s explore some of the – mostly – risk-free alternatives to funding your college education.

Scholarships

Pros: In my humble opinion, scholarships represent the absolute best way for you to pay for college. And with the internet, it’s easier than ever to search for and apply to them. Also, many colleges and universities award automatic merit-based scholarships to incoming students with an excellent high school GPA and outstanding ACT/SAT scores.

Cons: Like grants, scholarships have many stipulations that you must meet for them to renew. For example, a scholarship may require that you maintain a minimum 3.0 GPA every semester of college. For you, who likely earns excellent grades in high school, that requirement may not seem like a big deal. However, remember that college can throw you curveballs, and many students struggle their freshman year.

Grants

Pros: Grants, like scholarships, require no repayment. They’re literally free money. Also, too, many schools award them to eligible students automatically.

Cons: Most grants are need-based, meaning that if your parents make over a certain amount of money, you don’t qualify even if your parents do not intend to contribute one red cent to your college education.

The Bank of Mom and Dad

Pros: Who doesn’t love the Bank of Mom and Dad? I did. But why did I put it at the bottom of this list? Well, the Bank of Mom and Dad will be most likely to chip in if you can show them you’ve already earned some scholarships and grants. Also, the less they have to help you out, the more likely they are to do so. They love you and all, but they also have a mortgage, need a new carpet, and, you know, dad’s 401(k) just took a hit…

Cons: Money issues rank at the top of the list of things that families fight over. And the more your parents contribute to your education, the more influence they have over you. If they want you to be a doctor or lawyer, and you want to be one, too, that’s cool. But let’s say you want to change your major to something…less financially lucrative. That could cause some serious friction between you and your folks.

Now that we’ve discussed the best ways to pay for college without loans, let’s get into debt!

What Types of Loans Are There?

Just like in the previous section, I’ve listed loan types by my personal preference. In other words, start at the top and work your way down.

Federally Subsidized

As the name suggests, federally subsidized loans are those the federal government provides college students. Both subsidized and unsubsidized loans have annual limits, meaning you can only borrow so much money each year. Also, federal loans have much lower interest rates than private loans.

So why are subsidized loans at the top of this list? One reason – interest does not start accruing until you graduate. This simple fact can save you thousands of dollars down the road.

Federally Unsubsidized

Once you exhaust federally subsidized loans, you may need to take out some unsubsidized loans. Yes, the interest will start compounding from day one, but they pose less risk than…

Private

Starting about 20 years ago, skyrocketing tuition rates made it impossible for many college students to fund their education with only scholarships, grants, and federal loans. The private market jumped in to fill the gap – easy credit with high-interest rates attached.

Then the Great Recession happened.

After 2009, the private student loan market contracted significantly, and today, most private loans require a co-signer (e.g., your parents) who is also legally responsible for paying back the loan. Fortunately for you, most private loans in 2020 are significantly less predatory than they were pre-2009. However, higher interest rates mean that you will end up paying more over time.

Who Can Help Me Choose the Right Loan(s)?

As private loans are where many college students get into financial trouble, we at myKlovr want to provide you with tools that can help you explore private loan options that best fit your needs. That’s why we’ve partnered with GradFin, a financial services company that works with college students and graduates to both select the right loans and create a payment plan that promotes long-term financial stability.

In the near future, myKlovr users will be able to take advantage of GradFin’s many services, including:

  • Loan searching
  • Refinancing
  • Debt forgiveness

Throughout the process, GradFin experts work with users one-on-one to create a bespoke plan that features loans with the lowest interest rates.

Additionally, GradFin will offer its services to myKlovr users at no additional cost.

Final Thoughts

As we wrap up, let’s take a moment to consider how much debt is too much debt.

Simple Answer: It depends on you.

Complex Answer: As you begin exploring student loans, consider your academic and career goals. Is the job market that aligns with your intended major soft right now? Are average salaries lower than you expected? If the answer to either question is ‘yes,’ you may want to consider cheaper colleges and universities.

Finally, no matter which school you attend, myKlovr and GradFin will help you make the right decisions regarding your academic and financial future.

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