Smart Money: The Fight Against Your Student Loans

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Student debt in the United States is at an all-time high, and it’s climbing fast. Total student debt more than doubled between 2009 and 2019, from $772,000,000,000 to $1.6 trillion. Dealing with the issue of student debt requires rewiring the cost structures of the higher education system and dealing with many complex issues across the country. However, there are smart ways that you can get a head start on tackling your loans.

For starters, refund checks are not free money. Many private loans give you around $5,000 in refund checks that can be deposited directly into your bank account. But if you accept this money, you are essentially taking out an additional loan which will be added to your student loans. If you take a $5,000 refund check today at a 5% interest rate, that will grow to over $10,300, which you will have to pay back in 15 years.

There are three main types of subsidized student loans: federal, unsubsidized and federal private loans, specifically Sallie Mae. Federal subsidized loans are student loans where the government pays for your interest payments while you are in school. With federal unsubsidized and private loans, your loan begins to attract interest while you’re in school.

The interest rate on federal loans tends to be significantly lower than on private loans. Federal loans are 2.75% for undergraduates, while popular Sallie Mae interest rates range from 4.25% to 12.35%. As of March 31, federal student loans were placed on automatic forbearance — you can still make payments as you wish — and interest rates were set at 0% through December 31. How your private loans have changed since the start of the pandemic will depend on where you borrow from.

Sallie Mae does not have automatic forbearance, but upon request, you can suspend your student loan payments for up to three months without affecting your credit rating. You will still earn interest, but accrued interest during this period will not be added to your total loan amount and will be subject to additional interest.

Depending on the type of loan you have, the date your loan starts growing will be different. If you are a freshman with a federal subsidized loan of $10,000, your $10,000 will start earning 2.75% compound interest per annum six months after graduation. Assuming you make no payments, your loan, including principal and interest, totals $17,204 after 20 years.

But for an unsubsidized federal loan of the same amount of money and at the same time period, your loan will total $19,176 because interest will have been collected from freshman year instead of six months after graduation. If you had a Sallie Mae loan for $10,000 at an interest rate of 5%, your loan would total $32,251 after 24 years. These numbers are understandably daunting, as most students have more than one type of loan. One way to manage is to start early.

Let’s face it, most of us don’t have thousands of dollars lying around to pay off loans. A faux pas that I often see is that students save amounts of money “for when I start paying off my loans”. If you have money to contribute to your loan after canceling an emergency fund, contribute it now. With the way interest on debt works, what you pay now will have far more buying power than it will in 20 years. With strategic budgeting, a small monthly contribution of $10 to $50 can be easily incorporated into your life and will save you thousands of dollars in the future.

Many loan servicers allow you to set automatic payments to be made toward your loan, which is an easy, low-maintenance way to get started. Go to to find out how many student loans you have, as well as the company you will be repaying. For private loans, go directly to the lending company’s site to get started. As always, if you have any questions, set up an appointment with me or one of the coaches through Smart Money orange SUCCESS. You have this!

Andrea Lan is a Junior Financial Lead and Smart Money Coach at the Office of Financial Literacy. His column appears every two weeks. She can be contacted at [email protected].

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