Saturday, November 12, 2016

Student Loans: Paying Off Private vs. Federal Loans

Financially, I have accidentally done a lot of things right.  I'm not sure that student loans were one of them.  I got out of my bachelor's degree with very few loans (all federal), but went on to pursue my theatrical dreams.  The tuition was higher than what the federal government would loan me the money to finance, so I had to go back to the financial drawing board.  I was dead-set on attending this specialized school, and it's intensive programming wouldn't easily allow for me to work part time on the side.  My parents didn't have the finances to contribute.  Since I had good credit, I was able to qualify for a private student loan.  So, I took the loan, and never looked back.  I wouldn't change the education or training for anything in the world to tell you the truth.  I still use my theatrical education to this day, and the schooling was among the best experiences of my life.  That being said, I was still being fairly naive when I took out that loan.  Regardless, it's mine now, and I need to deal with it!

So, for those of you in the same boat as me and have both private and federal student loans, it is essential you pay the private loans off first.  They are typically variable rate, and do not come with the same deferment options that federal loans allow you. It is a tricky choice to make (paying them off before the federal ones) because on the surface, they look cheaper.  Right now, I am paying 3% interest on the private student loans.  That is a pretty cheap loan, comparatively.  The catch is, that since it is variable, they can raise it on me as much as they want, whenever they want.  I mean, they have to give me notice, but they can still increase it on me!  Secondarily, they have very limited deferment options, if any at all.  My private loans can be deferred for 12 months over the ENTIRE life of the loan.  That pretty much buys me one year of hardship, or unexpected life event of ANY KIND.  The federal government is much more generous and offers a plethora of deferment choices to keep you out of trouble if something terrible happens and you cannot pay your loans.  For example, you can defer for up to 36 months for financial hardship, or unemployment (among other reasons), and then set your payment plan to adjust based on your income.  While, you don't really want to stall paying them, because the interest will keep adding up, if you have a total and complete life disaster, you won't go into default (which would destroy your credit).

So, the moral of the story is that if you have private loans, they come first.  Please tune in for a explanation of your repayment options for federal student loans.

No comments:

Post a Comment