Peer Advice: What You Can Do Now to Get Financially Ready for College

And that’s a wrap. Another year has come and gone and I am officially down to three semesters left of college. Where has the time gone?

When I reflect on the last two years, I think about how much I’ve learned since I was a junior in high school. If only I could have known then what I know now – and I know I’m not the only one who thinks that. So, to you high school juniors and seniors who may not have thought much about the higher education investment in your near future, take some tips from this fellow student who went into it all without an idea of what it would cost me on the flip side.

First, start saving now. Yeah, that’s easier said than done, but trust me on this one. College isn’t just tuition and textbooks (and yes, it is true that most books are upwards of a couple hundred dollars…). It’s also living expenses, a wardrobe to rep your new team, and nights out with new friends. It will cost you to “worry about it later” because you still won’t be saving “later” if you have a spending habit now.

If you are already a spender, now is the time to break that habit because your expenses will only rise when you get to campus. If that’s not convincing enough, try this not-so-fun fact: I spent every single dollar of every paycheck that I earned during my first semester of college, and not a penny of that was spent on tuition or textbooks. Yikes, that was hard to admit… SAVE NOW. You’ll need it.

Keep filling out scholarship applications! I didn’t realize how important this was until I saw that none of my first-year scholarships returned my second year- surprise! Scholarships that you receive as a freshman may not necessarily be renewed year after year, at least not without reapplying.

You should continue to apply for new scholarships each year, and set aside time to research and write quality essays. It may require a big chunk of your time, but it’s worth it; remember, you don’t have to pay scholarships back. The more money you are gifted, the less you have to take out in student loans.

Take advantage of any financial education you can get your hands on. If you are lucky enough in high school to be offered a financial education class, take advantage of it! If not, take a look online at online programs, or try to enroll in a personal finance class your first semester of college. You will be amazed at how much you actually don’t know, and how much lifelong information you will learn. A financial education course will provide you with indispensable information for college that will be as close to real-life experiences as you can get without making those real world mistakes. This opportunity is priceless and the more knowledge you can obtain before you start taking out student loans, the better.

Get to know your student loan options. Student loans can be intimidating… if you’re not aware of how they work. Student loans are a reality for most students, and yet many just skip through their federal loan entrance counseling without paying it any mind. That lack of interest and state of being uninformed leads to student loans that can spiral into five and six-figure debt. Take the initiative to learn about what you’re doing before you borrow – after all, they’re your loans:

  • Discover the difference between subsidized and unsubsidized loans.
  • Master any unknown terms that you encounter during the financial aid process.
  • Calculate how much you will take out versus how much you will pay back.
  • Be sure you only borrow what you need (and no, spring break is NOT actually a necessity).
  • Realize the difference between federal loans and private loans.
  • If you’re using private student loans, compare lenders to see who will offer you the lowest interest rates.

There is a lot of information out there about different types of loans and how you “should” pay for school, but a good place to start is the Federal Student Aid website where you can learn about federal financial aid. Keep in mind that you know your financial circumstances better than any piece of paper or website, so what works for the mainstream may not be for you, and that’s okay. Your school’s financial aid office is there to help you figure it out.

While each student’s experience is unique, a lot of us share common financial flaws when we first leave the nest. It’s safe to say you’ll make mistakes as you learn how to borrow and invest in your future, but limit those by learning as much as you can before you make the transition, and lessen the burden on your future self. Your future self will thank you for it.

6 Creative Ways to Build an Emergency Fund

About 70 percent of all recent college graduates have student loan debt, while nearly 30 percent of Americans admit they have zero emergency savings of any kind. If you find yourself in both camps, trying to figure out how to save money and pay off debt at the same time can feel like a vicious circle.

Yet, ideally, you should have at least $1,000 set aside for a financial emergency; some experts recommend up to eight months’ worth of expenses. That’s a tough number to reach with student loans debt looming over your head.

So what if you’ve scrimped, saved, and budgeted – but still aren’t seeing results? It might be time to get creative.

How to build an emergency fund with these offbeat ideas

They may seem unorthodox, but try some of these tips to start saving up your emergency fund without missing a single student loan payment:

1. Have a “Bill Haggle Day”

We all have to pay the bills – but did you know you don’t necessarily have to pay as much as you are right now?

Don’t be afraid to contact your insurance providers, reach out to other creditors, and call your cable company to ask for lower rates or better deals. The worst they can say is “no,” but you’ll never know their answer for sure if you don’t ask.

Use a good driving record to score a $20/month reduction on your auto insurance. Or look up competing cable providers’ fees and take that to your current carrier. The same goes for your credit cards; if they don’t match the rate, tell them you’re jumping ship.

Add up these savings for some much-needed dollars to your emergency fund.

2. Pawn off your stuff

In the age of Craigslist and eBay, it’s easy to forget about good ole pawn shops. But they’re still a simple way to get cash fast by selling your old stuff.

Raid your closet, drawers, basement, or garage and get rid of what you don’t need. It could be clothes, or old furniture, computer equipment, or anything hanging around.

While you might not be able to get a spot on Pawn Stars, check with a few local pawn shops to see if you can get a fair price on your goods. Don’t relinquish anything of sentimental value you might regret.

Another suggestion is to browse flea markets and thrift stores for vintage objects of value, buy them, and resell them at a higher price. Remember to bring your phone along with you to spot price differences before you buy and resell. It’s another way to earn some extra dough for your emergency fund.

(Scavenging for scrap metal at your local junkyard or dumpster diving for treasure are at your own risk.)

3. Quit your bad habits

Too many cigarettes, eating out with friends, Starbucks lattes, or more junk food than what’s healthy – the first reason you should be giving up those vices of yours is for the sake of your well-being. Then again, it could also save you a bunch of bucks for that emergency fund (or your student loan payments, whichever you prefer).

According to Daily Finance, one pack of cigarettes a day can cost you $511 a year. Eating at McDonald’s twice a week can run you up $860 annually. A weekly beer run may rack you up $234 per year. And let’s not forget that daily $1 lottery ticket purchase is $365 by Dec. 31.

Start cutting back or give up some of these habits, if you can. Your savings will benefit and so will your health.

4. Become a human guinea pig

Schools, hospitals, and clinics are always looking for volunteers to participate in clinical tests, drug trials, and other research projects. Some will pay you as an incentive to participate.

The National Institute of Health, for one, offers more than 300 studies for healthy volunteers. You might check online to see if there are any similar opportunities.

If getting poked or prodded isn’t your thing, you might check into participating in a psychological, focus, or survey group – in-person or online – where you can get paid to log your opinion on everything from product testing to polling. Just make sure to read the rules and fine print before you sign up and be certain that the organization is legitimate.

5. Rent out your car

You don’t need to become an Uber driver to raise some extra cash. Also consider renting your car out for money.

Sites like and are like the Airbnb of cars. List your car, respond to renters’ requests, and lend your car for the amount of time you set. If you don’t need your car for extended periods of time, renting it out this way can contribute to your emergency fund earnings. According to, a $14,000 car rented out for 10 days a month can net you $3,466 per year. There’s also a $100 signing bonus.

6. Sell your body parts

Those student loans may cost you an arm and a leg, but don’t worry, you won’t need to go as far as putting your limbs on the market for cash. However, you can receive money in exchange for blood, plasma, hair, sperm, breast milk, eggs, and yes … even poop.

You can earn about $20 to $50 per blood or plasma donation; you’re legally allowed to donate up to twice a week. In some cases, you might be paid a bit more on your second return visit of the week, so you could stand to earn some regular side cash if you’re not squeamish. For hair, many websites solicit long, healthy hair in exchange for cash.

And yes, believe it or not, a company called OpenBiome will pay you $40 per feces sample, $50 if you donate five days a week. The screening process can cost up to $5,000, however, and you have to be super healthy to participate.

Some of the best ways to keep on top of student loan debt without dipping into your vital emergency funds is to keep a tight budget, track your spending, and keep your savings in a high-interest deposit account.

Combine these with some of the above more creative tips and your student loan payments won’t become the emergency that your emergency savings need to rescue.


“This article, 6 Creative Ways to Build an Emergency Fund , was originally published on”

What Exactly Is a Student Loan Grace Period?

You’ve graduated college and are ready to enter the “real world.” But even though your school years are behind you, you’ll probably be paying for them for years to come. Fortunately, most federal student loans come with a grace period to give you some breathing room between graduation and when payments are due.

But what is a grace period, exactly? And more importantly, how does it work? Read on to learn what a grace period is and how it impacts student loan borrowers like you.

What is a grace period?

Many federal loans grant student loan borrowers a grace period after they graduate. During this time, borrowers don’t need to start repaying their loans right away.

“A grace period is a temporary period after graduation during which no payments are due on a student loan. Typically it lasts around six months,” said student loan lawyer, Adam S. Minsky.

“The idea is that borrowers may need some time to find employment before their loans become due.”

However, while many federal loans offer a six-month grace period, not all of them do.

“Direct Loans have a six-month grace period before payments are due, but PLUS Loans do not have a grace period (though you may be eligible for an in-school deferment while enrolled),” added Jay Fleischman of the Student Loan Show.

When it comes to private loans, the rules vary, but there is usually no grace period at all. Once you graduate, it’s important to talk to your loan servicer and find out when your grace period is over. Not sure who to call? Find your loan servicer using this guide.

What you need to know about your grace period

Getting a break from paying back your student loans right away is a helpful way to ease into adult life and not be bombarded by your student loan balance. While it’s a nice perk of many federal student loans, it’s not a vacation from student loan repayment.

Depending on the type of student loans you have, the interest may keep accruing on your student loans, even while you’re enjoying your last respite from financial reality.

“It’s important to know that interest continues to accrue on all unsubsidized loans, so your balance will be higher when you begin repayment than when you stopped going to school,” said Fleischman.

If you have a large balance and a high interest rate, an additional six months of interest could mean paying several hundred dollars more than you originally planned.

Another important thing to note is that if you consolidate your student loans through a Direct Consolidation Loan, your grace period may be cut short. Consolidation can seem like a great solution for borrowers with multiple student loans, but it can also mean losing some perks.

Fleischman noted, “You lose any remaining grace period if you consolidate your loans. Therefore, if you’re going to consolidate your federal student loans, it’s best to do so once your grace period expires.”

Though many private student loans don’t offer any kind of grace period, some lenders — such as SoFi — will honor your existing grace period if you refinance with them. So if you’re looking to merge your loan balances and get a better interest rate, refinancing could be a good option.

How to rock the grace period

You should take advantage of your grace period by getting a repayment plan in place and preparing financially.

“Borrowers should contact their loan servicers to find out when their grace period ends, and they should understand their repayment before that first bill arrives,” said Minsky.

If you don’t choose a specific repayment plan, your federal loans will automatically be under the Standard Repayment Plan, which gives borrowers 10 years to pay back their student loans.

Your loan servicer should notify you of when your repayment will start, but you don’t want to be surprised when you get your first bill. You also don’t want to miss any payments, which could potentially lead to delinquency or default if you’re not careful.

For that reason, it’s also really important to stay in touch with your loan servicer and make sure your account information is up-to-date, such as your phone number and email.

“It is important to update your contact information with your loan servicer if it changes during your grace period,” explained student loan expert Heather Jarvis.

Also, if you’re lucky enough to have scored a job right out of college, you CAN start paying back your student loans before your grace period is up. While you’re not required to, doing so can help you put a dent in your debt early on.

If your loans are unsubsidized, you’ll be able to minimize how much interest accrues; if your loans don’t accrue interest during the grace period, you can start attacking the principal balance right away.

Regardless of what you choose, you should mentally and financially prepare for student loan payments during your grace period. Be sure you fully understand your repayment plan and prospective monthly payments. Your grace period is the time to get all your ducks in a row and pick a debt payoff strategy so you can climb out of debt as soon as possible.


“This article, What Exactly Is a Student Loan Grace Period, was originally published on”


8 Common Student Loan Mistakes

Mistake #1: Letting your contact information become out-of-date

Moving away from campus?

Changing your cell phone number or e-mail address?

Make sure you let your loan servicer know. Their services are provided free of charge, but they can only help you if they can reach you.

Mistake #2: Paying for student loan help

You may have seen an ad on Facebook, or gotten phone calls or letters from companies offering to help you lower your payment or apply for loan forgiveness for a fee. If someone asks you to pay for these services, you are not dealing with the U.S. Department of Education or our loan servicers.

We don’t charge application or maintenance fees.  If you’re asked to pay, walk away (or hang up).

Contact your loan servicer for free student loan help.

Mistake #3: Choosing the wrong repayment plan (or not choosing a repayment plan)

Your repayment plan determines your monthly student loan payment and how long it will take you to pay your loans back.

We offer several repayment plans, but your choice really comes down to what your goal is: to pay off your loan quickly or to have a low monthly payment. The 10-year standard plan will allow you to pay off your loan quickly and save you money in interest. An income-driven plan will allow you to have low monthly payments, but you will be in repayment for longer and pay more interest. If you take no action, you’ll automatically be placed on the 10-year plan.

Student Loan Table Pay Quicker vs Pay Less

The best way to compare your options is to use our repayment calculator.

TIP: Seeking Public Service Loan Forgiveness?  You need to choose an income-driven repayment plan to benefit from the program.

Mistake #4: Not consolidating your loans when you should

Took out federal student loans before 2011?

Then you probably need to consolidate your loans for better repayment options, like Public Service Loan Forgiveness or the best income-driven repayment plans. Make sure you know the pros and cons of consolidation and contact us for help deciding.

Mistake #5: Not setting up automatic payments

Never miss a payment!

Sign up for automatic debit through your loan servicer, and monthly payments will automatically be made from your bank account.

And, you’ll get a 0.25% interest rate deduction when you enroll!

Mistake #6: Not paying extra (when you can)

Interest on your student loan accrues every day.

An easy way to save money is to pay extra whenever you can.

You can pay off your loan faster if tell your servicer these two things:

  1. The extra payments should not be put toward any future payments, and to
  2. apply extra payments to the highest interest rate loan.

This will reduce the interest you pay, and over time, reduce the total cost of your loan.

Mistake #7: Paying late or missing payments

Late or missed payments hurt your credit score and will affect your future ability to get loans for things like a car or a home.

If you miss multiple payments and go into default, your wages could be garnished and your tax refund withheld.

If you’re overwhelmed or can’t afford your next payment, contact your loan servicer as soon as possible. They can recommend options to reduce or postpone your paymentand keep your loan in good standing.

The worst thing you can do it to stop paying your loan.

Mistake #8: Postponing payments (without considering other options first)

There are two ways you can temporarily stop (postpone) your payments: through adeferment or forbearance.

They can be helpful solutions if you’re experiencing a temporary hardship, but they aren’t good long-term solutions because they don’t actually help you pay the loan back.

In most cases, interest on your loan continues to accrue (accumulate) even while you’re not making payments.  Eventually, it may capitalize (interest accruing on interest).  When you resume payments (which you‘ll have to do) your loan balance will be higher than before.

Deferment or forbearance may set you back even further, so it makes sense to consider other options.

For example, you may want to consider an income-driven repayment plan instead. Under these plans, if you’re single and make less than $1,486 per month, your monthly “payment” could be set at $0, which is technically what it would be with a deferment or forbearance. The benefit of choosing an income-driven plan over postponing payments is two-fold:

(1) Interest subsidies*, meaning if your payment doesn’t cover the interest that’s accruing on your loans, the government will cover some or all of that interest for you, and

(2) Loan forgiveness is built in to the plans, so even if you aren’t paying your loan back as quickly, there is light at the end of the tunnel.


* The government may pay the interest on certain types of loans if you choose a deferment.

If you ever need one-on-one help with your student loans, contact your loan servicer.

Your loan servicer works on behalf of the Department of Education to collect payments and answer questions about your student loans. Your loan servicer should be your go-to resource throughout the repayment process.

Their advice and assistance is always FREE! You never have to pay for help with your student loans.

Nicole Callahan is a Digital Engagement Strategist at Federal Student Aid.


This article originally appeared on

Tips for Filling Out the FAFSA as a First-Generation College Student

Being a first-generation college student is a big deal and a huge opportunity. You’ll be the first person in your family to experience the lighter side of college — like experimenting with ill-advised late-night dining options — as well as the more serious ultimate goal: getting a degree.

Navigating the college experience is hard enough as it is, but many first-gen students face an even steeper uphill battle: English may not be spoken at home, parents may be working long hours, or affordable tutoring programs may not have been available. Those who do attend college may face higher dropout rates and take longer to graduate. According to the Pell Institute, about 11% of low-income, first-generation students who entered college in 2003 received a bachelor’s degree within six years, compared with 54% of non-low-income, non-first generation students who did.

But before students can even register for classes, they need to fill out the Free Application for Federal Student Aid, or FAFSA, which gives access to federal grants, scholarships, loans and work-study. The FAFSA can be challenging for all families filling it out for the first time, but for first-gen students it may be even more overwhelming and intimidating — and that can have a major impact on their financial aid. In fact, in the 2007-08 school year, dependent students whose parents had a high school diploma or below received an average of $2,000 less in total aid than students whose parents had earned a bachelor’s degree or higher, according to a study by the National Center for Education Statistics.

Going into the FAFSA without any background knowledge can put you at a disadvantage, but filling it out is not an impossible task — and you don’t have to go it alone.

Here are our top FAFSA tips for first-generation college students and, for that matter, everyone filling it out for the first time:

Use the IRS data retrieval tool

With 108 questions on the FAFSA, the hardest part will probably be figuring out what each question is asking for, especially when it comes to questions related to taxes.

“It was incredibly intimidating, because at that point nobody had ever covered taxes with me,” says Rhina Lara, a first-generation student at the University of Florida and director of H1G, a mentoring program for first-generation honors students.

However, if you’re eligible to use the IRS data retrieval tool, the FAFSA gets a lot less complicated. It pulls information from your tax returns directly to your application. The FAFSA opens on Oct. 1, 2016, for the 2017-18 school year, so you’ll be using tax information from the year before to fill it out initially. This will result in just an estimate of your aid, but you can update it after you file your tax return. Your updated information will be available within three weeks if you filed electronically or within 11 weeks if you filed on paper. Ask your parents to file electronically to speed up the process.

Another tip: Get your FSA ID before you start filling out the FAFSA.

Your FSA ID is the username and password you’ll be using if you complete the FAFSA online, and it follows you from the Federal Student Aid site and National Student Loan Data System to You’ll need your Social Security number, and it takes the Social Security Administration one to three days to process your info if you’re new to the system, so creating an ID before you start your application will help cut down on processing time.

Start your FAFSA ASAP

Since many first-generation college students don’t have access to the same resources as other students, it’s vital to give yourself enough time to complete the FAFSA. Sarah Place, National Access Program director at Bottom Line, a nonprofit company that focuses on helping first-generation and low-income students get into and succeed in college, says: “There’s a knowledge gap. … [They] just don’t know what the college application process is like.”

That means it can take first-gen students longer to complete the FAFSA than those with more experience with it, as Khalil Johnson, a junior at Pitzer College and blogger at I’m First, an online community for first-gen students, found when he filled out his first FAFSA.

“It was about a month-and-a-half-long process to fill it out; it did not go quickly at all,” says Johnson, who noted that he spent most of that time clarifying what each question asked for.

The FAFSA also has varying state and school deadlines. For example, your state deadline might fall after an institution’s deadline.

“Make sure that you’re keeping track of each school and each deadline,” Place says, “because when it comes to financial aid and missing a deadline, there can be major consequences, even missing the deadline by one day.”

Gather your documents

Use this FAFSA checklist to keep track of all the documents and information you’ll need before you start. This includes:

  • Your FSA ID.
  • Your SSN.
    • If you’re not a U.S. citizen and you don’t have an SSN, be sure to include your alien registration number along with your application.
  • Your driver’s license number.
  • Federal tax information or returns from the previous year. (Be sure to mark “will file” on your application. You can correct the information once you get your latest tax returns.)
    • For a U.S. tax return, this will be an IRS 1040, 1040A or 1040EZ form (include all W-2s as well).
    • For a foreign tax return (or for a tax return from one of the U.S. territories), include everything.
  • Records of your current bank account balances.
  • Records of untaxed income (such as child support, interest income and veterans noneducation benefits).

If you’re a dependent student, you’ll need to gather these documents from your parents as well. If a parent doesn’t have an SSN, input 000-00-0000. The FAFSA does not ask about your parents’ citizenship status.

You’ll also have to include at least one targeted school when you first fill out the FAFSA; you can send it to more schools later on. If you go that route, though, you might miss out on first-come-first-served aid, so it’s best to include all schools you’re interested in attending (up to 10). Use the federal school code search tool to add schools to your application.

Talk to your parents about their finances

First-generation students and their parents may lack experience with the financial aid process, but that doesn’t mean you should go it alone if you can help it. Get on the same page with your parents and get a realistic idea of your finances. It can be a touchy subject, but the result (aka your estimated family contribution, the amount the government estimates your family can afford to pay out-of-pocket) affects them too, especially if they end up taking out a Parent PLUS loan to finance your education. Johnson found the support from his mother to be especially comforting.

“My mom was really hands-on. She had no idea what she was doing, but she was not afraid to ask,” he says.

You should ask for basic information you’ll need to fill out the FAFSA such as, “What’s your gross annual income?” and “Do you receive any external income like child support or government assistance?” But you should also ask questions about how you’ll pay for school. For example:

  • How much do you think we can afford to pay out-of-pocket per year?
  • Who is responsible for financing my education? What is a good ratio of financial responsibility? For some, it’s a 50-50 split between the parent and student. For others, it’s necessary to leave it up to the student to pay for college.
  • Do I have a 529 savings account? Do we have other savings that we will be using to finance my education?
  • Do you expect our financial situation to change over the next four years? This includes changes such as getting a raise (especially if it pushes your parents into another federal tax bracket), having a child or changing jobs. If your parents’ income isn’t reliable, for example if they freelance or they’re looking to switch careers, you should be aware that your FAFSA results (and, by extension, your financial aid package) may vary greatly from year to year.

Your parents may have no frame of reference for talking about financial aid, the FAFSA or student loans, but involving them in the process will help you take control of your financial future.

Ask for help

The questions on the FAFSA aren’t always clear-cut, so reaching out for guidance and support is extremely important for first-gen students. Where can you go for help? Place suggests calling the Federal Student Aid information center at 800-4FED-AID (800-433-3243).

“They’re actually pretty helpful, and they usually pick up the phone pretty quickly,” she says, adding that students shouldn’t be afraid to ask questions that may seem obvious.

There are other places first-gen students can go for help, too. College Goal Sunday, for example, offers an extensive list of resources for filling out the FAFSA. Your high school guidance counselor can also offer assistance with navigating your financial aid applications. And this FAFSA Guide also has information for filling it out, particularly for students who have nontraditional family circumstances, like students who don’t depend on their parents or who have an unusual immigration status.

Lara, the first-gen student from the University of Florida, suggests leaning on local students and families who’ve already filled out the FAFSA as another source of support.

“Reaching out to other students, especially those who have done it already, that’s really your best bet. Living in Miami, a lot of my friends were also first-gen, but talking to students who’d already done it was really helpful. They were the ones who knew exactly what to tell me,” she says.

Next steps

Once you’ve submitted your FAFSA, you’re in the homestretch, but you’re not over the finish line yet.

Follow up with each school to make sure it has received your documents. If you don’t see confirmation within the first two weeks, send the financial aid office an email.

If you get your Student Aid Report back and your estimated family contribution seems too high, you can submit additional documents to have it adjusted for your circumstances.

Remember, the federal student aid process doesn’t end after you click “submit.” The FAFSA needs to be filled out every year you’re in school.


Devon Delfino is a staff writer at NerdWallet, a personal finance website. Email: Twitter: @devondelfino.

This article was updated May 18, 2016. It was originally published April 1, 2013.

The article Tips for Filling Out the FAFSA as a First-Generation College Student originally appeared on NerdWallet.

5 Tips for Buying a Home if You Have Student Loans

When Kristin and Sean Couch were ready to buy their first home, they feared that one thing would hold them back: Kristin’s student loans. Her broadcast journalism master’s degree from Syracuse University had left her more than $80,000 in debt.

The Couches are part of a generation that’s delaying major life decisions, like whether to buy a home, because of student loan debt. More than half of student loan borrowers say their debt affects their ability or decision to become a homeowner, according to a 2015 survey of 1,934 student loan borrowers by American Student Assistance, a Boston-based nonprofit.

But becoming a homeowner is possible even if you have student loans. The Couches bought their 2,900-square-foot Craftsman home in Gainesville, Georgia, last spring. Here’s how you can do it, too.

Shop for a home you can afford

Home shopping can be tempting. Three-car garages! Granite countertops! Stainless-steel appliances! Before you get carried away, research the type of home you actually can afford. If you’re a first-time homebuyer, you may have to settle for a starter home instead of your dream abode.

But there are good reasons to buy a home sooner rather than later, namely tax incentives and the opportunity to build equity, says Brian Koss, executive vice president of Mortgage Network, a Massachusetts-based independent lender.

Minimize debt from credit cards and car loans

When lenders evaluate you for a mortgage, they typically look at four things:

  • Your income.
  • Your savings.
  • Your credit score.
  • Your monthly debt-to-income ratio.

Your debt-to-income ratio shows the lender your total financial obligations — including car payments, credit card debt and student loans — compared with your income. Lenders are looking for borrowers with a debt-to-income ratio of 36% or less, including the monthly mortgage payment. To keep yours low, pay off as much debt as possible before applying for a mortgage.

The Couches focused on paying off Sean’s truck and their credit cards, which they’d relied on when Kristin was “making less than peanuts” in her first few jobs. When they got their mortgage, their only remaining debt was from Kristin’s student loans.

Lower your monthly student loan payments

Even without other types of debt, having a lot of student loans could give you a high debt-to-income ratio. To lower that ratio and show your mortgage lender you have enough extra cash to make your monthly mortgage payments, consider refinancing your student loans or switching to an income-driven repayment plan to lower your monthly student loan payment.

There are tradeoffs involved with both refinancing and income-driven repayment plans. When you refinance federal student loans, they become private loans and you lose federal protections, including access to income-driven plans and federal forgiveness programs. Income-driven plans, which cap your monthly payment at a percentage of your income, increase the amount of interest you’ll pay over time because they extend your term length.

Most mortgage lenders won’t mind if your overall student loan debt will increase; they’re primarily concerned with your monthly payment, says Kevin Hanson, director of lending at Gate City Bank in Fargo, North Dakota. But you’ll save the most money on your student loans if you minimize the amount of interest you’ll pay over the life of the loan.

Make your student loan payments on time

When mortgage lenders look at your credit history, they’ll want to see that you’ve paid off other debts on time, including your student loans, car payments and credit cards. If you’ve proved you can handle debt responsibly and you have a good credit score to show for it, mortgage lenders will be more likely to approve you – even if you still have outstanding student loans.

“A student loan is never negative,” Koss says. “It’s just a question of whether you pay it on time.”

Save for a down payment and closing costs

Buying a home doesn’t just involve taking on a mortgage – you’ll also have to pay upfront for closing costs and the down payment. Closing-related costs include the home inspection, mortgage loan origination fee, mortgage insurance, homeowners insurance premium and title fees. In total, closing fees cost the average homebuyer about 2% to 5% of the home’s price, according to Zillow.

A traditional down payment is 20% of the cost of the home, but there are other options for borrowers today, such as putting less down and paying for private mortgage insurance each month until you build 20% equity in your home (though the less you put down, the more you’ll pay in interest).

Despite Kristin’s student loans, the Couches were able to buy their home with just 3% down through a local bank. But that doesn’t mean her student loan payment isn’t still a burden. “It’s as much as a second mortgage,” she says.

Still, to her, owning a home is worth the extra responsibility. “It’s yours,” she says. “You bought it. It’s something tangible that you can see.”


Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: Twitter: @teddynykiel.

This article was written by NerdWallet and was originally published by USA Today.

The article 5 Tips For Buying A Home If You Have Student Loans originally appeared on NerdWallet.

Who Gets Student Loan Forgiveness, and How Does it Work?

“Ask Brianna” is a Q&A column for 20-somethings. I’m here to answer your questions about how to manage money, find a job and pay off student loans — all the real-world stuff no one taught us how to do in college.

I’ve heard the magical term “student loan forgiveness,” and I’ve even had a company say it’ll help me apply. How does it work?

It sounds like a 20-something’s confession: Forgive me, U.S. Department of Education, for I have borrowed too much money.

The government’s student loan forgiveness programs are free to sign up for, and they can relieve some of the stress of a towering student loan balance. You’ll have to meet a few specific criteria to qualify: Work at a nonprofit for 10 years, for instance, or pay back your loans on a 20- or 25-year income-driven repayment plan.

There are some trade-offs, though. Income-driven plans free up your cash flow every month, but you’ll pay more in interest over time. You’ll also pay taxes on the forgiven loan amount in most cases. And private student loans don’t qualify. So if you’re looking for help with those, ask your lender about other ways to lower your bill.

It’s not hard to apply for income-driven repayment plans or Public Service Loan Forgiveness programs, but some borrowers don’t know they exist — or where to start. More and more companies have taken advantage of this confusion. They come up in Google searches, appear in Facebook ads and make calls, offering to get you on track for loan forgiveness for a fee. Don’t fall for it. You can do it yourself, for free.

Here’s how to get your federal student loans forgiven — legitimately — so you can join the ranks of the mercifully loan-free.

Path to forgiveness No. 1: Work in public service

Choosing to work in the public interest isn’t just a nice thing to do. It will also cut down on the amount of loans you have to repay.

Public Service Loan Forgiveness is one of the most generous forgiveness programs available. Full-time nonprofit or government employees can have their remaining loan balance forgiven after they make 120 on-time monthly payments — 10 years’ worth when made back-to-back. Keep your bills affordable by choosing an income-driven repayment plan while you work toward Public Service Loan Forgiveness. Perhaps the best part? You won’t be taxed on that forgiven balance.

Your 120 payments don’t have to be consecutive, so you can bounce from nonprofit to for-profit work and get credit just for the periods of public service work you do. Public Service Loan Forgiveness started in 2007, as part of the College Cost Reduction and Access Act, so the first borrowers to benefit will get forgiveness in October 2017.

Teachers and Perkins loan borrowers who work in public service careers also have forgiveness options. Teacher Loan Forgiveness will cancel up to $17,500 in certain federal loans if you work for five years or more in an eligible school. The amount you’re forgiven depends on the subject you teach.

Borrowers with Perkins loans, which go to students with particularly high financial need, can have up to 100% of their Perkins loans canceled if they work in qualifying jobs. Apply for loan cancellation, which typically happens in increments over five years, directly through the college you borrowed Perkins loans to attend.

Path to forgiveness No. 2: Choose income-driven repayment

Loan forgiveness is an added bonus to the four income-driven repayment plans the government offers, which limit your monthly loan bills to a percentage of your income. They are:

Income-based repayment and Pay As You Earn require you to show you can’t afford your bill on the 10-year standard repayment plan. But anyone with federal direct loans can sign up for Revised Pay As You Earn, which went into effect in December 2015 and is known as REPAYE.

You’ll pay 10% of your income for 20 years on the plan (25 if you have graduate school loans), and then the remainder will be forgiven. But — yikes — according to current IRS rules, you’ll be charged income tax on the amount forgiven.

Each plan has pretty different requirements. See how much you’d pay on each using the government’s Repayment Estimator tool. Apply (for free — sick of hearing me say that yet?) on, and check “I want my loan holder to place me on the plan with the lowest monthly payment” so you’re sure you’re on the right one.

You can pay $0 if you don’t have any income, and those months count toward your 20- or 25-year repayment term, at the end of which you’ll have your balance forgiven. Periods of deferment (in certain circumstances) or forbearance, which are options for postponing your loan payments altogether, don’t count as part of that time frame.

PSA: Don’t pay to sign up for student loan forgiveness

I’ve gotten a lot of questions recently from readers about companies that have contacted them, offering to sign them up for loan forgiveness for a fee. My response is always: Don’t do it.

These companies often don’t make it clear that they’re actually applying for income-driven repayment or consolidation on your behalf, which you now know isn’t very hard to do. (Consolidation is necessary to convert certain federal loans into a direct consolidation loan, which makes them eligible for repayment on income-driven plans or forgiveness through Public Service Loan Forgiveness.)

There are a few warning signs that the company you’re dealing with doesn’t have your best interests in mind. A big one is if it refers to “Obama student loan forgiveness,” which doesn’t exist. Many state attorneys general have sued companies they say have misled consumers, and the Consumer Financial Protection Bureau is on the case, too.

You’re too smart to use a service that will actually charge you money to lower your loan payments. An upfront or monthly fee that increases your bill is costing you money you could put toward your loans (or any of the million bills you pay) instead.

If forgiveness is an option for you, go forth and apply on your own — and don’t hesitate to contact your student loan servicer or Federal Student Aid for help.


Brianna McGurran is a staff writer at NerdWallet, a personal finance website. Follow her on Twitter: @briannamcscribe.

This article originally appeared on NerdWallet.

5 Must DOs Before Repaying Your Student Loans

Almost time to start paying back your student loans?  Contrary to popular belief, your student loan payments don’t have to stop you from living your life. You just have to weigh your options and find a strategy that works within your budget. Here are some steps to get you started.

1. Compare monthly payment amounts

The amount you pay each month toward your student loans will depend on the repayment plan you choose. If you take no action, you will be automatically enrolled in the 10-year Standard Repayment Plan. If you don’t think you can afford that amount or you want a lower monthly payment, consider switching to an income-driven repayment plan, where your monthly payment could be as low as $0 per month. Just know that when you make payments based on your income your monthly payment amount may be lower, but you will likely pay more in total over a longer period of time.

Use our repayment calculator to compare the different repayment options.

repayment estimator output


TIP: If you’re interested in the Public Service Loan Forgiveness Program, you should apply for an income-driven repayment plan and submit an Employment Certification Form.

2. Decide whether to consolidate

If you borrowed federal student loans before 2011, you may need to consolidate any FFEL loans into the Direct Loan program before you can qualify for the better income-driven repayment plans or Public Service Loan Forgiveness. You may also want to consolidate if you have multiple loans and/or servicers and want a single monthly payment. The application takes about 10 minutes.

Consolidate my Loans

3. Choose an affordable repayment plan

If you decide to consolidate, you will choose a repayment plan from within the consolidation application. If you’d like to choose an income-driven plan, choose the Pay As You Earn Plan. It’s the best plan available, and if you don’t qualify for it, your servicer will put you on the next best income-driven repayment plan.

If you aren’t going to consolidate and you’d like to enroll in one of the income-driven repayment plans, learn how to choose the right income-driven repayment plan and apply here. The application takes about 10 minutes.

Choose recommended option in IDR app

Apply for an income-driven repayment plan

If you’re interested in a plan other than the standard or one of the income-driven plans, contact your servicer to ask how to enroll.

 4. Set up your payments

You will never pay the U.S. Department of Education directly. In most cases, federal student loan borrowers will make payments to one of our loan servicers. Loan servicers work on behalf of the U.S. Department of Education to collect your payments and provide customer service. If you don’t know who your loan servicer is, find out here.

Your loan servicer will contact to let you know when your first payment is due and how to make a payment, so it’s very important that you provide your servicer with updated contact information.

TIP: To simplify the repayment process, consider enrolling in auto debit and your payments will be automatically taken from your bank account each month. As an added bonus, you get a 0.25% interest rate deduction when you enroll. Ask your servicer how to enroll.

5. Know who to contact if you need help with your student loans

Beware of student loan scams.  You never have to pay for help with your student loans. As you’re researching repayment and forgiveness options, make sure you’re getting information from trusted sources, like .gov websites or your servicer’s website. The government and your servicer will never charge application or maintenance fees, so if you’re asked to pay, walk away.

If you have questions or need help, contact your servicer.

TIP: Save your servicer’s contact information in your phone so you can access it when you need to.


Nicole Callahan is a Digital Engagement Strategist at the U.S. Department of Education’s office of Federal Student Aid.

This article was originally found on

Should I Get a Credit Card?

“Ask Brianna” is a Q&A column for 20-somethings. I’m here to answer your questions about how to manage money, find a job and pay off student loans — all the real-world stuff no one taught us how to do in college.

Send a question about postgrad life to and I’ll send back my best answer. I might include it in a future column, and then you’ll be famous. Sort of.

This week’s question:

I’m in college and I want to get a credit card. Is that a good idea? How should I do it?

Credit cards are alluring and a little scary. They suddenly give you the ability to buy a plane ticket or a new computer whenever you want; they’ve also inspired countless cautionary tales about how too much debt can mess up your life. But used correctly, credit cards show the world you’re financially responsible, which will come in handy later on.

Consider Season 1, Episode 2 of “Saved By the Bell,” which was a fundamental part of my childhood (I rewatched the episode to write this column; highly recommended). High school student Lisa Turtle ran up the outrageous sum of $386 on her dad’s credit card, and she had to sell some of her clothes and get a job to pay it off. At the end, Zack Morris held up a fake credit card with a “Lisa” logo on it and said, “The Lisa card. Don’t leave home … with it.”

Lisa Turtle’s fate doesn’t have to be yours. Here’s how to decide whether to get a credit card as a college student and how to use it the right way from the start.

Understand the goals of your first foray into plastic

We should get it out of the way that your goal is to build credit, not to carry a credit card balance for years. That means no neon green leather jackets like Lisa’s, unless you have enough money in the bank to pay it off that month. Otherwise, you’ll rack up big interest charges.

The average household with credit card debt has $15,762 of it and pays $6,658 a year in interest, according to NerdWallet’s December 2015 Household Debt Study. We want you to buck the trend and be credit card debt free. Plus, if you’re like the nearly 70% of Class of 2014 grads with student loans, you might have a monthly student loan payment to tackle when you graduate anyway.

So why get a credit card at all? Using a credit card responsibly will help you build a great credit score. That will qualify you for things like an apartment and a good deal on auto insurance in many states. It may surprise you how many times you’ll need to show strong credit habits later on. Some employers even do credit checks on prospective hires.

Start by choosing the right credit card for your needs; putting a few manageable charges on it, such as gas for your car or a utility bill; and paying them off right away.

Size up your credit card options

You won’t be able to get just any credit card initially, since credit card companies want to see some financial history first. A 2009 federal law called the Credit Card Act also made it harder for college students without income from full-time jobs to get credit cards on their own.

The law protects you from crazy fees, sudden increases to your interest rate and credit card companies’ misleading marketing tactics. But it makes the credit card application process a little more complicated: If you’re under 21, you must show you earn enough “independent income,” which can include pay from a steady job, allowances, scholarships and grants (but not student loans).

Some of your options:

Become an authorized user

If you don’t meet the income requirements noted above, consider asking a parent or another older, trusted family member to add you as an authorized user to his or her credit card.

Confirm with the credit card company that your activity as an authorized user will show up on your credit report. That’s how you’ll start building credit history. But while you can make charges on the card and help pay them off, you’re not legally responsible for the bill — and your activity won’t have as big an impact on your credit score as getting your own card.

Get a student credit card

A student credit card is a popular introduction to credit if you’re under 21 and earn independent income. Many student credit cards come with perks like cash-back rewards or 0% APR (your interest rate, in nonbank speak) to start. You may need a co-signer — a parent or another responsible adult with strong credit — to qualify for certain student cards. But not all credit card issuers allow co-signers.

When you apply with a co-signer, make sure she or he knows co-signing means covering any charges you can’t pay back. If you miss a payment, that could also hurt your co-signer’s credit.

A secured credit card is a related option, though you’ll still need to show you earn independent income if you’re under 21. It requires you to pay a deposit upfront that often ends up being your credit limit. To get a secured credit card with a $1,000 limit, for instance, you’d pay a deposit of $1,000. If you keep your card in good standing, you’ll get the deposit back when you close your account or upgrade later to an unsecured card.

Pay your whole bill on time every month

No matter what you use your card for — gas, groceries, utility bills — plan to pay your bill in full at the end of the month, no way around it. Automatic payments from your checking account can help. Many credit card companies’ online portals will even let you pay your current balance automatically on your due date without having to push a button.

It’s also important to avoid charging too much to your card throughout the month, even if you plan to pay your bill in full. As a general rule, keep your balance below 30% of your total credit line. For instance, on a $1,000 limit, charge no more than $300. That contributes to your credit utilization ratio, and along with payment history it’s one of the biggest factors in your credit score.

If you want to buy something a little outside your means, start a savings account and work toward it instead of putting it on a credit card. There are lots of ways to save money without realizing it; some online banks even let you name savings accounts to motivate you, like “Deposit for New Apartment Without 10 Roommates.”

You’re smart to know you should build credit soon. Keep up the good habits and use your credit card sparingly while you’re in school. I can already hear your sigh of relief when you’re approved for your dream apartment five years from now.


Brianna McGurran is a staff writer at NerdWallet, a personal finance website. Follow her on Twitter: @briannamcscribe.
This article originally appeared on NerdWallet.