The conventional way to manage your student loans in the past was to defer all payment while enrolled and begin repayment after graduating or leaving school. Unfortunately, to defer payment while in school will result in you accruing the maximum amount of interest and fees. To avoid this increase in debt, try the Bruin Budget Plan.
The Bruin Budget Plan
The Bruin Budget Plan is a seven-step series of money management techniques. When all steps are implemented, students will find their debt burden effectively reduced. In following the Bruin Budget Plan, you make small sacrifices while in school for which you will reap the benefits in the future. The key benefit is a smaller loan balance, which translates into a smaller loan payment.
What are the seven steps of the Bruin Budget Plan?
- STEP 1: Create a formal budget.
Having a realistic formal budget aids you in controlling your finances. You will never again have to ask the question, “Can I afford this?” You will already know how much money you need for necessities and what you have budgeted for less pressing items. For help in creating a budget, utilize websites containing on-line budgeting tools, such as www.loans.ucla.edu/Money-And-You to start.
- STEP 2: Borrow only what you truly need.
If, after you budget your expenses, you realize that you can live on less than you have been awarded, you may reduce or eliminate all together specific loans. There are a number of ways to reduce your award package. You can decrease the loan 'offer' amount you 'accept' on your FAN yourself or you can request to speak with a counselor in the Financial Aid Office who can assist you in this matter.
- STEP 3: Work and pay cash for personal expenses.
Working part-time (10 to 15 hours per week) will help keep your potential debt at a lower level. Remember, financial aid was not designed to pay for downloads, movie tickets, vacations and dates, but rather for educational expenses only. Also, having a part-time job allows you to pay cash for purchases and helps you to avoid accumulating high-interest credit card debt.
- STEP 4: Pay-As-You-Go.
If you paid just $20.00 per month towards a subsidized federal student loan during four-years of undergraduate studies, you would lower your loan balance by almost $1,000.00. To Pay-As-You-Go, simply call your lender to get their mailing address and any other pertinent information your lender requires to send payment. Since you will not officially be 'in repayment' status with your lender, they will not bill you; therefore, you will have to remember to make a personal effort to send payments on your own as well as keep a record of all payments.
- STEP 5: Have a long-range view.
It is important to have a long-range view of your student loans so you can see how reducing your award and making payments while you are in school translates into savings over the life of the loan(s).
- STEP 6: Make accelerated payments.
Although repayment is a long way off, keep this tip in the back of your mind for when you do leave school and officially enter repayment. Remember the $20.00 in-school payment mentioned earlier? Once you enter repayment, maintain the momentum by paying more than the minimum payment required each month. In doing so, your principal balance will be reduced at a much faster pace.
- STEP 7: Take advantage of lender repayment incentives.
Lenders offer monetary rewards for doing business with them in specified ways and for making on-time payments. The most common incentive offered is an interest rate reduction for payment of your loan(s) through automatic debit from your checking or savings account. Check your lender's (or your lender's loan servicer) website for other incentives and qualifying details.
What if I can send more than the suggested monthly in-school payment?
While in school it is completely at your discretion to decide how much money you can afford to send to your lender each month. Sometimes students are able to send a payment greater than the suggested amount; at other times, less. If it does not cause a financial problem regarding your budget, then pay more than $20.00 each month. Obviously, the more you pay while in school means lower payments once you have graduated. And there is no penalty for prepayment. For Perkins Loans and Subsidized Stafford/Direct Loans, all in-school payments are applied directly to principal, benefiting you by reducing the overall interest paid on the loan.
Should I pay the interest on my unsubsidized loan while I’m in school?
Paying the accruing interest on an unsubsidized loan while you are in school is to your advantage. After leaving school, all unpaid interest will be capitalized at the conclusion of your grace period. Capitalization will result in the unpaid interest being added to the principal balance of the loan, which increases the total outstanding balance due in addition to increasing the interest you will pay. Also, note that it is usually best to pay the accruing interest on an unsubsidized loan before making voluntary in-school payments toward any subsidized loan.
(UCLA attempts to provide up-to-date information in our Bruin Dollars and $ense How To Series. Please be aware that the content of this document is based upon information that was correct at the time of publication. All information pertaining to and gathered from both UCLA and other sources is subject to change without notice.)