One of the most valuable things you can do to begin securing your financial future is to use the Bruin Budget Plan. Following this plan will result in a reduction of your potential student loan debt. The plan contains 'action steps' for you to take while in school, as well as those to take once you are out of school. One of the action steps that you can take while still in school is the innovative Bruin Pay-As-You-Go.
Introduced first at UCLA, Bruin Pay-As-You-Go is a simple, yet revolutionary, concept in student loan maintenance. Traditionally, students have deferred the repayment of their student loans until they have finished school. Pay-As-You-Go means that you begin to make payments to your student loans while still a student. In order to have the sacrifices you will make produce the greatest rewards, you need to approach this Bruin Budget Plan action step prudently. The steps listed below will guide you through the Pay-As-You-Go process:
How to Pay-As-You-Go
To put Pay-As-You-Go into practice, you will need to:
- STEP 1: Create a formal and realistic budget that includes all of your personal and school expenses. Keeping a spending diary, honestly noting all of your day-to-day expenditures, can show you exactly where your money goes. You may be shocked at the amount of waste in your present spending habits.
- STEP 2: Identify areas in your budget where you can trim excess spending. These will be the areas where you will save money which you can redirect toward your student loan debt.
- STEP 3: Identify your lenders and notify them of your intentions to make early payments towards your loans. Obtain and record any pertinent information your lender provides, including account numbers and payment addresses. Be sure to find out how much you owe, and what kind of loan you have, and whether the loan is subsidized or unsubsidized. (Much of this information can be found through the MyLoanData web tool/portal at www.loans.ucla.edu/MyLoanData on the UCLA Student Loan Services & Collections website.) As you will read below, knowing whether or not a loan is subsidized is extremely important.
- STEP 4: Create a file in which you will record all of your payments and your declining balance. If you pay your lender by check, keep your cancelled checks in this file as a record of your payments. If you only receive statements for your checking account or e-statements, photocopy or 'save as' your monthly (electronic) statement, highlighting/commenting the appropriate check transaction. If you pay by money order, save your purchaser’s copy as a record of your payment.
Personal and entertainment-related expenses, like eating out or going to movies, make up the discretionary part of a person’s budget. The source of Pay-As-You-Go payments will come from your discretionary income. Working a small number of hours per week can create valuable extra income that can supplement your Pay-As-You-Go payments.
Don’t make early payments to a Perkins Loan if you think you might be eligible for an employment cancellation benefit later. Under the terms of this loan, if you are a teacher in a Title I school, a social worker at a certified agency, a nurse or medical technician, or work in other designated fields, you can request cancellation of your loan over time. However, if you make or have made payments to a Perkins Loan for which you are entitled to a cancellation, you will not be able to get a refund.
For subsidized loans, the government or the lender pays any accrued interest as long as you remain enrolled in school at least as a half-time student. The payments you make while in school will go directly to the loan’s principal (as in the amount borrowed ), and reduce the amount you owe.
For unsubsidized loans, you must pay the accrued interest while you are in school, or it is capitalized. When interest is capitalized, it is actually added to your original loan, thereby increasing the size of your loan once you go from your grace period into repayment.
If you have borrowed an unsubsidized student loan, your lender will ask you to choose whether to pay your interest periodically while in school, or have it all capitalized. Choose the option that will have the lender bill you for interest while you are in school. Paying the interest, or as much of it as you can, will markedly reduce the amount you could have owed had you chosen otherwise. In almost all cases, it is advisable to make payments to interest due on unsubsidized loans before making in-school/in-grace payments to reduce a subsidized loan.
If you are heading toward an advanced degree, it is especially important that you begin to take control of your debts now. Otherwise, your debts can end up taking control of you and dictating your future. Living frugally now can better ensure you will live more financially able later. To give an example: a simple cutback of one movie ticket per week, or one pizza or one hamburger lunch per week, translates into approximately $20.00 to $40.00 per month. At the end of four years, applying $20.00 to $40.00 per month to a student loan, perhaps a subsidized student loan, translates into a reduction of between $1,000.00 to $2,000.00 in the amount you would otherwise owe your lender.
Using Pay-As-You-Go, you will pay less interest and you may end up with a smaller monthly payment. You could even finish repayment sooner, and start enjoying the things in life for which you have worked so hard!
(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.)