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College Planning

How do student loans work?

In order to easily repay student loans after graduation, it is important to consider your debt-to-income ratio, deferment possibilities, and consolidation options.

Student loans are what many financial gurus might call good debt. You're investing in your future, including your job opportunities and earning potential. By the year 2020, 65 percent of jobs will require at least some postsecondary education.1 In addition, young adults with a bachelor's degree earned 64 percent more than those with only a high school diploma in 2015.2

The patterns of improved employment and earnings with a college degree are expected to continue. A loan can be one way to finance your education, and the diploma you receive on graduation day can help open doors.

One door prize you'll receive upon completing your degree is a coupon booklet or statement to start repaying your student loans. Consider your debt-to-income ratio, deferment possibilities, and consolidation options to wisely manage your finances during the repayment period.

Debt-to-income ratio

Your average income and debt determine not only your lifestyle but also your credit health. As many television commercials remind us, your credit health impacts your ability to get money when you need it. For example, you'll need a favorable credit score to qualify for a loan when you're shopping for a new car or buying a house.

Deferment possibilities

Payments on federal student loans are usually delayed until you complete your degree, and interest is often subsidized. In addition, you may be eligible to temporarily postpone or reduce payments after graduation during periods of financial hardship. While it's not ideal, deferring a loan payment for a few months is better than falling behind and defaulting on the amount due. It pays to check your eligibility for a no-penalty, no-interest deferment option.

Consolidation options

Qualifying for a federal loan is not a one-time event. In fact, most loans are paid by semester. You'll need to re-complete the Free Application for Federal Student Aid (FAFSA) each year if you plan to be a student in order to qualify for federal aid.

At the end of college, you may have a complex combination of loans to repay. For this reason, you may want to think about consolidating a variety of loan debts into one comfortable and easy payment for sanity and budgeting purposes. It also gives you access to alternative repayment options.

Repayment is a certainty like taxes and death, but it doesn't need to be a hardship. Careful planning of your student loans and entry level life beyond college will keep you comfortable as you enter the workforce and ascend the career ladder.


1. Recovery: Job Growth and Education Requirements Through 2020," Georgetown University

2. The Condition of Education: Annual Earnings of Young Adults," National Center for Education Statistics



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