Student College Loans–Good Loans or A Liability?
So you’ve graduated from college and on your way to making some real money. Six months later, a letter comes in the mail notifying you of student loan repayments.
Now you are faced with a few options. You will hear people say that student loans are “good loans” and that you should drag those loans out as long as possible. After all, their interest rates are low, right? Back in the heydays of economic growth, you are better off taking your money elsewhere investing it. But this might not be the case during a recession. Your money can sit in a .01 percent interest-bearing account or you can put that money into paying off those student loans locked in at say, 6 percent. Holding onto those student loans might not be such a sweet deal, if you have cash to spare.
But what it you are still looking for a job? Forget about student loans; you could hardly pay the bills. Some loans allow you to apply for forbearance or deferment. You won’t have to pay your loans for another few years. Sounds great doesn’t it?
Not always. When you are granted forbearance, interest still accrues daily at the loan’s interest rate. As for a deferment, interest accrues over the period but the government will pay it for you for subsidized loans only. For unsubsidized loans, YOU are responsible for the interest.
What does this all mean? As interest accrues and becomes capitalized, it is added to your original balance. The new balance is then compounded daily at the loan’s interest rate. By the time your grace period is over, you are left with a much higher balance and fatter future repayments.
So keep that in mind as you are faced with options of repayment. Student loans are still a liability, and you will have to repay it one way or another.
