Plus, 5 things you need to know about your student loans, but probably don’t.

By Catey Hill
September 11, 2020
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Student loans - graduation cap in mousetrap
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As I was doing my daily Twitter “doomscroll” one recent evening, many of the usual types of tweets popped up: the political rants, the 2020 Doomsday jokes, the cute cat pics. But then something a bit out of the ordinary showed up: A tweet from journalist Sarah Kelly, that simply read: 

Whew, I’ve been writing about personal finance for more than a decade now, and I know how much borrowing money costs, but still, that calculation struck me. And while Millie did not see her actual student loan bill to confirm those numbers, experts say that situation is not an impossibility.  “That tweet describes a not-uncommon story,” explains Mark Kantrowitz, the publisher and vice president of research for SavingforCollege.com.

Indeed, you can end up owing more than twice what you actually borrowed. “It is often caused by an extended period of non-payment, capitalized interest during the in-school period, collection charges on defaulted loans and loan fees being added to the loan balance,” Kantrowitz explained. What’s more, even if you’re doing everything right, you can still expect to pay a pretty penny for your student loans. Here are some of the things you need to know about your student loans.

On average, for every $1 you borrow, you repay roughly $2, explains Kantrowitz. Of course, this is an average, and some will pay less; but some too, will pay more, he adds. “You’re going to pay a lot less if you stick with a 10-year repayment plan,” he adds; repay the loans over 20-30 years, and you’re likely looking at thousands or tens of thousands more. What’s more, you’ll likely pay more if you have private student loans, as compared to federal student loans, and if you have an extended period of non-payment or default, during which time the interest is accruing.

Ideally, you borrow less than your starting annual salary upon graduation, advises Rebecca Safier, a student loan expert at StudentLoanHero.com. So if you expect to make a $40,000 salary in your first job, keep your total student loans under $40,000. That will likely enable you to repay your loans in 10 years or less, explains Kantrowitz. Student loan debt is good debt because it’s an investment in your future, but too much of a good thing can hurt you,” says Kantrowitz. 

Don’t panic if you can’t make full payments right now.  Through the end of September, the CARES Act provides relief—including the ability to pause payments on many loans without penalty—for borrowers. And in general, those with federal student loans have myriad options that can lower their monthly payments to something they can afford (this article goes through your options) and even ways to get loans forgiven (this article will walk you through that). Even if you have private loans, it’s worth calling your lender to see how they can work with you. 

Get discounts for repaying your student loans. Some lenders offer a discounted interest rate if you do auto-pay, says Kantrowitz. It’s also worth taking the student loan tax deduction each year if you can (you don’t even need to itemize to get it), he adds. 

You don’t always need to race to pay off your student loans. For those lucky folks who do have extra money right now, it’s tempting to pay down student loans faster, but that’s not always the right move. “First make sure you have an emergency fund with six months of salary before you pay extra,” says Kantrowitz, adding that that’s especially relevant in these tough times. “After that target loans with highest interest rates.”  If you have credit card or other high interest debt, you will also want to tackle that before putting more money to paying off your student loans (though you should always pay the minimums).