Repayment plans add thousands in interest Students who borrow the maximum amount of federal student loan dollars – $31,000 for dependent undergraduates – would pay $387 in monthly payments on a 10-year repayment schedule. After 10 years, they’d wind up paying $46,453 including interest to whittle that debt down to zero. This is a modest payment estimate that assumes the current 4.99% interest rate throughout. However, that interest rate is expected to rise. While there are other repayment options available for federal student loans, the 10-year plan is considered the standard, and it generally results in the lowest total paid. This analysis assumes the student is paying on unsubsidized loans. But the federal government also subsidizes some qualifying loans, meaning it covers the interest while the student is attending classes half time or more, potentially saving thousands of dollars. New student tip: Students are not required to make payments on federal student loans while attending school and for a six-month grace period after. But if you’re taking on unsubsidized federal student loan debt while in school, you have the option of making interest-only payments during these periods. Because the interest is compounding, paying it as it accrues can save you considerably over the life of your loans. Increased grant disbursements are a relief valve If there’s good news, it’s that grant disbursements are up. Students may be able to lessen how much of their tuition bill is covered with borrowed money by qualifying for institutional, state and federal grants. The largest source of federal grant aid, the Pell Grant, is no longer enough to cover all higher education costs of the most at-need students, but institutional grants have been picking up a greater share of total grant coverage in recent years. In fact, institutional grants now make up more of total undergraduate student aid than federal loans, a change that occurred in the 2019-2020 school year, according to College Board data. New student tip: Grants are “free money” and don’t have to be repaid. Your best bet to get the maximum amount you’re entitled to is to fill out the Free Application for Federal Student Aid, or FAFSA, when it opens each year. Grants may be need-based, but they can also be awarded based on merit or even demographics. Like scholarships, every dollar of grant money you get is a dollar you don’t have to borrow and pay interest on.

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