What’s the True Cost of Your Student Loan?
Higher Education A recent study conducted by Laurel Road highlights student debt and the financial stress associated with it as a rapidly growing issue across the nation.
“Refinancing a student loan can help ease the burden by lowering your interest rate and in many cases monthly payments,” said Alyssa Schaefer, chief marketing officer and head of customer experience of Laurel Road Bank. “We found that many Americans were not fully aware of this option.” In fact, only one-third of college-educated student loan borrowers had refinanced their student loans.
The cost of student loans
Since 2012, U.S. student debt has grown to more than $1 trillion, and that figure continues to grow. The average American student owes more than $34,000 in student loans when they graduate from undergrad. Post-graduate student loans are usually in the six-figure range: lawyers owe approximately $160,000, while doctors owe roughly $190,000 after graduation.
The average American student owes more than $34,000 in student loans when they graduate from undergrad.
It’s therefore important for every student to understand the true cost of the loans they are taking on as well as the associated repayment options available to them post-graduation. Laurel Road’s study showed that 76 percent of college-educated adults in America didn’t fully understand their financing options to pay for college when they applied and that 55 percent of Americans (66 percent for millennials) with student loans said it took longer than expected to pay off their student loans.
“We believe it is important for every student to enter into undergraduate or graduate programs with a clear understanding of the loans they are taking on and their repayment options while in school as well as post-graduation,” explains Schaefer.
Paying off debts
Interestingly, there is a wide discrepancy between the millennials who are taking advantage of refinancing options, as 62 percent of millennial men versus only 39 percent of millennial women have refinanced their student loans. This could be partially attributed to the fact that, of non-finance degree students, 88 percent of millennial men versus 54 percent of millennial women took personal or business finance courses while in college, and hence, are slightly better educated on their debts and options available.
It is important for applicants to identify any hidden costs associated with loans and factor these additional fees into the true cost of their loan. When evaluating loan options, applicants should consider items like application and origination fees, prepayment penalties, fixed versus variable terms, interest rates and the annual percentage rate.
The road to refinancing
For many graduates, refinancing is an option. Look for lenders that have been doing this for at least three years, and educate yourself on the rates and terms that are right for you. Much like mortgage rates, students have a choice between fixed and variable rates, with terms up to 25 years depending on the financial institution.
Schaefer’s advice to students is simple: “Lowering your interest rate by just a couple percentage points can have a huge impact on your monthly payments. We encourage students to refinance as soon as they’ve secured a [full time] job upon graduation. The sooner you refinance to a lower rate, the sooner you start saving money on your student loan.”
To help you figure out your best repayment option, Laurel Road offers a free online loan assessment calculator. Input basic information and get a snapshot of what you can expect to pay and save under different federal repayment programs versus private refinancing programs.
Students can save thousands over the course of their loan just by refinancing. What can you do with your savings? Put a down payment on your first home, plan for your wedding, travel around the world, buy a car, invest in a retirement account… the possibilities are endless.