Investing in a College Town Rental Market: Ann Arbor, Michigan

College towns are attractive markets for investors in rental properties for several reasons. Students and faculty create large and dependable markets of tenants. Local economies dominated by academic institutions are remarkably stable compared to those based on manufacturing or agriculture. Larger universities create hundreds of non-academic jobs in research centers, medical facilities, and new companies spun off by technologies developed locally.

Ann Arbor, Michigan, home to the main campus of the University of Michigan, is an excellent example of a campus-based economy that is much larger than its facility and student body. One out of three local jobs are in educational service, and an additional one out of ten are in technical, professional and scientific services. At $39,235, Ann Arbor’s average per capita income and its median family income of $102,615 are 20% to 30% higher than national averages.

WalletHub ranked Ann Arbor, the nation’s fifth-best college town and the best small city college town in 2020 based on academic, social, and economic opportunities for students. It also ranked Ann Arbor, the nation’s “most educated city in 2020,” outranking San Jose, California, and Washington, D.C. It also placed first in educational attainment and quality of education and attainment gap.

Read: 5 Reasons Why You Should Still Buy an Investment Property

college university student leaving librarycollege university student leaving library

Affordability is Under Fire

Popularity can have a downside, and Ann Arbor is experiencing the price of success in rising housing costs and decreasing affordability, especially in Washtenaw County as a whole.

As of February 2020, the average monthly rent in Ann Arbor was $1,580 for an 882-square-foot apartment, a 3% increase over 2019, higher than the national median for a comparable apartment ($1,468) and considerably higher than nearby Detroit ($1,069) or East Lansing ($1,294), home of Michigan State University. Half of Ann Arbor tenants spend 30% or more of their household income on rent. HUD defines cost-burdened families as those “who pay more than 30% of their income for housing” and “may have difficulty affording necessities such as food, clothing, transportation, and medical care.”

“Ann Arbor – and its central driver, the University of Michigan – is a magnet for highly educated households with upward mobility and significant disposable income. With some exceptions, Ypsilanti (City and Township) and their challenge of being overloaded by a disproportionate number of at-risk households and homes with negative equity – is where the most affordable options exist,” stated a 2015 Washtenaw County housing study.

“Ann Arbor will become more costly, and less affordable, especially to non-student renters in the short run and eventually, to aspiring buyers as well. The driver for higher costs is a combination of high livability and quality of life, great public schools, resulting in sustained demand by households with discretionary income, and resulting expectations of stable and continually rising property values,” the study concluded.

Read: Investing in a College Town Rental Property: Charlottesville, VA

The Ann Arbor Rental Market is Vast and Profitable

In many ways, Ann Arbor is a great rental market. The massive student body drives demand. About 70% of the University of Michigan’s 46,000 students live off-campus and the current cap rate for Washtenaw County apartment buildings is a respectable 7.6%. (The capitalization rate is the ratio of rentals’ net operating income to property value. Low cap rates imply lower risk, and higher CAP rates indicate higher risk.)

Living off-campus is so popular; the university maintains web pages listing rentals and providing advice and information for off-campus renters. This summer initiated a “virtual housing fair” to help students find rentals for the 2020-2021 school year.

group of young college students hanging out at homegroup of young college students hanging out at home

Homes.com lists 1,235 properties in Ann Arbor, with a median home value of $355,600, about 17% above the national median of $304,100 in July. Of the total homes in Ann Arbor listed on Homes.com, 60% are for sale, and 34% are rentals.

Read: What to Know Before You Rent to College Students

Though several new high-rise apartment buildings recently opened and more are under construction, single-family rentals still dominate the market. Homes.com lists more than 200 single family homes for rent in Ann Arbor. Smaller rental households are a result of the above-average presence of single-family rentals relative to apartments. The average household size for Ann Arbor rentals is 2.2 people, compared to 2.3 for Michigan and 2.5 for the nation as a whole.

COVID-19 and Ann Arbor, Michigan

COVID-19 delayed the University of Michigan’s plans for the fall semester but did not cancel fall apartment rentals. The university’s plans include both in-person and remote classes, a new academic calendar, and the elimination of breaks and changes centered around preventing the spread of the coronavirus.

Despite the pandemic, Ann Arbor is still one of the best college town markets in the nation. As in most markets, acquisition is a challenge. Property prices in Ann Arbor are rising, and the smaller, less expensive homes that make ideal single-family rentals are few and far between.  Otherwise, conditions are good for single-family rental owners and will improve as the nation returns to health.


Steve Cook is the editor of the Down Payment Report and provides public relations consulting services to leading companies and non-profits in residential real estate and housing finance. He has been vice president of public affairs for the National Association of Realtors, senior vice president of Edelman Worldwide and press secretary to two members of Congress.

Source: homes.com

Rent-to-Own Real Estate: The Benefits and Risks for Home Buyers

Rent-to-own real estate may sound like a dream come true. Under the best circumstances, everyone benefits: Sellers collect rent and have a purchase commitment from the buyers, and the buyers can move in right away.

In addition, credit score problems or other financial issues that could hamper a buyer’s ability to get a mortgage matter much less in a rent-to-own agreement than when you’re buying a house right out.

Either way, though, buying a home is still a major financial commitment. While rent-to-own real estate contracts may not be traditional, they’re not necessarily always less complicated than negotiating on a purchase price and getting a loan.

You may not need to come up with a big down payment or have the best credit score to enter into a rent-to-own agreement, but still, this type of contract isn’t always easy to manage.

The key to a smooth transaction is ensuring that you understand the entire process. Here’s what you need to know about rent-to-own homes, as well as the risks involved for buyers.

Why choose a rent-to-own agreement?

Ordinarily, sellers don’t like being landlords. They prefer to get their money in one lump sum and avoid dealing with tenants.

Rent-to-own homes are more common when there is a downturn in the real estate market and numerous homes on the market are vacant. Under a rent-to-own plan, the seller can lock in a price before the market drops further.

But it can be a great choice for tenants, too. While leasing can be a great option, you might be tired of looking for homes to rent. In fact, maybe you’re finally ready to buy that forever home.

However, the high recent purchase price on homes in your area may seem daunting, and you might know that you can’t afford a hefty down payment. This is when a rent-to-own contract might work for you.

Terms of rent-to-own real estate

Always read your contract closely and be sure you can handle the terms. The rent-to-own real estate contract should include the home price, the cost of rent, and the deadline that establishes when you should exercise your option to buy.

It should specify what portion of the rent payment is credited toward the home purchase—or if you need to write two checks each month, for the rent and for the home payment—and under what circumstances the contract can be voided.

You should make certain that there is no language allowing the landlord to evict you for a minor infraction after you have made a substantial financial investment.

It’s worth the expense to have an experienced real estate attorney look at your lease-option contract to make sure you are protected.

When the agreed-upon lease option expires, the tenants will get the chance to buy the house.

Most of the money the tenants have invested in the house is going towards the purchase price, so if they are able to qualify for a home loan, they can be in a good place to buy the house.

If, however, they aren’t able to swing a home loan, and can’t afford the house, they could be out more money than they would be if they had simply been renting during the period.

Renting to own may at first seem like a lease agreement with a pot of gold at the end.

However, if you’re not careful, the deal could go south, and you could end up in big financial trouble. Don’t let your excitement over becoming a homeowner keep you from doing your homework.

Rent-to-own home fees

There are extra fees when it comes to rent-to-own properties, including an option fee and maintenance fees.

The option fee is likely to cost between 1% and 5% of the purchase price. Tenants also can expect their rent to total slightly more than the market rate during the lease.

Usually, all or part of the option fee will be set aside as a down payment. While the home is being rented, the landlord retains ownership but often requires the tenant to assume responsibility for maintenance.

Remember that maintenance on a house can be expensive, so consider carefully what state the house is in before agreeing to a rent-to-own property.

Know the risks of rent-to-own real estate

Buyers can get plenty of benefits out of rent-to-own agreements—but not without some big potential roadblocks.

In many cases, buyers are counting on being able to rebuild their damaged credit rating while living in the rent-to-own home and paying above-market rent.

To benefit, they must be able to get their finances in order and qualify for a home loan before their lease option expires.

Should the market drop significantly, the buyers/renters may end up owing a lot more on a house than it’s worth. It will also be harder to move out should their lifestyle change.

Leasing with an option to buy can be a good financial tool if you know what you’re doing. You could make plans for buying a house without needing to qualify for a home loan or ponying up a hefty down payment.

Make sure that before you go the rent-to-own real estate route, you talk to a lender or mortgage broker to make sure that you will be able to qualify for a loan.

Updated from an earlier version by Emmet Pierce

Source: realtor.com

How To Save Money On Textbooks + Campus Book Rentals Review

How To Save Money On Textbooks + Campus Book Rentals Review

How To Save Money On Textbooks + Campus Book Rentals ReviewIf you are looking for tips on how to save money as a college student, then one of the top things you need to learn is how to save money on textbooks such as through cheap textbook rentals. In this post, I will be including a Campus Book Rentals review because I used this textbook rental company throughout college and was able to save a great amount of money with cheap textbook rentals.

P.S. I also have a Campus Book Rentals coupon code at the end of the post, so do not miss out on this valuable Campus Book Rentals coupon for the best textbook rental company out there!

When I was in college, I always made sure to save as much money as I could. College is expensive, and everyone knows that. The costs can quickly add up. Between the tuition, lab fees, parking fees, textbook costs, and more, college costs can quickly get out of hand.

I know and understand this. I graduated with around $38,000 worth of student loan debt, and that was even with me carefully managing my costs. Thankfully I paid off my student loans (read about how I paid off my student loans within 7 months), but I do like to help others in as many ways as I can.

According to the National Association of College Stores, the average college student spends around $700 per year on the cost of textbooks.

That could be a total of a little less than $3,000 for a 4 year degree just for the cost of textbooks, and as everyone knows, the cost can actually be much higher than that.

I actually think this number that is estimated is wrong, because I don’t really know anyone who bought their college textbooks and only spent $350 or less from their college bookstore on the cost of textbooks. That wouldn’t have even covered two college textbooks for me from my college bookstore.

When I was in college, many of my college textbooks were around the $200 price for just one textbook, and I often took 7 or 8 classes a semester. This means if I paid full price for each book (whether I bought them online or from my college book store), I would have sometimes paid around $1,600 each SEMESTER!

Or $3,200 a YEAR!

That is just insane.

Below are my tips on the best ways to save money on college textbooks:

Rent your college textbooks through cheap textbook rental websites such as Campus Book Rentals.

When I was in college, I saved a great deal of money by renting my college textbooks. As I said above, college textbooks for me were expensive if I were to not shop around and just stick with the expensive books at the college bookstore. Who wants to waste a ton of money on the cost of textbooks by buying them at full price?

NOT ME! You can save a lot of money on the cost of textbooks by renting them instead.

I often rented my college textbooks that were $200 at my college bookstore for less than $50 for the semester. There are definitely some cheap textbook rentals out there!

I often found cheap textbook rentals for $25 as well That is a STEAL! I always used coupon codes as well, as they can be found everywhere. Lucky you, if you keep reading I have a CampusBook Rentals coupon code as well! 🙂

It was easy to rent textbooks online. Here is the step by step process of renting textbooks online and my Campus Book Rentals review:

  • I just had to find my college textbooks online such as on CampusBookRentals. Campus Book Rentals is the best textbook rental I used when I was in college. They made it easy and have a large college textbook selection for students to choose from so that you find the exact textbook you need.
  • I would then order the textbook for whatever time frame I needed. You can usually rent them for 45 days, two months, a full semester, or even longer. The longer the time frame, the more expensive they are, of course.
  • I would use the textbook for a class. Of course, this is not a surprise!
  • Once you are done with the textbook, all you have to do is return it. You will be provided a return label, so the return shipping is absolutely free. You don’t have to worry about the textbook being outdated, a new edition being published, losing money, etc.

I also have a Campus Book Rentals coupon code for 5% off your total purchase plus FREE SHIPPING if you need one as well. I genuinely believe they are the best textbook rental company out there right now, or else I wouldn’t be writing this whale of a Campus Book Rentals review post. The Campus Book Rentals coupon code is snowfall5. All you have to do is click on my affiliate link (the Campus Book Rentals coupon code only works with the affiliate link) and once you are ready to check out, enter snowfall5 as the Campus Book Rentals promotional code.

Skip the college bookstore for cheap textbook rentals or buy textbooks used.

The college bookstore can be a big rip off. Sorry to everyone who has ever worked at one.

I have three college degrees, and have visited the college bookstore many times to compare prices, and I do not think there was a single occurrence where the price at the college bookstore was cheaper than the price I found somewhere else, such as through CampusBookRentals.

Sell your college textbooks.

Some of you might be saying, well why didn’t you just buy your textbooks used and then sell them back, instead of renting college textbooks? Well, this is because it often turned out that whenever I bought a textbook, the very next semester they would be considered “old” because a new edition would be published. No one really buys old editions of finance books as they are considered “outdated” by many professors.

However, there are many instances where selling your college textbooks can be a great idea, and you can make some money as well.  If you are looking to save money in college, then you should learn how to sell your college textbooks back so that they aren’t just hanging out in your house collecting dust.

Thank you for reading, I hope you enjoyed this Campus Book Rentals review and that you learned how to save money on textbooks and a new way on how to save money as a college student.

How do you save money on your college textbooks?

Campus Book Rentals coupon code for the best textbook rental company!

P.S. Here is the Campus Book Rentals coupon again as well since you took your time to read my Campus Book Rentals review. I have a Campus Book Rentals coupon code if you need one for even cheaper cheap textbook rentals. The discount will give you 5% off your total textbook purchase rental plus FREE SHIPPING. The Campus Book Rentals coupon code is snowfall5. All you have to do is click on my affiliate link (the Campus Book Rentals coupon code only works with the affiliate link) and once you are ready to check out, enter snowfall5 as the Campus Book Rentals promotional code. This coupon code is good until April 30, 2015, so you have plenty of time to use it for this semester’s classes.

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Source: makingsenseofcents.com

Learning How To Survive On A College Budget

Find out how to survive on a college budget here. This is a great list!

Find out how to survive on a college budget here. This is a great list!College is expensive and everyone knows that.

Between paying for tuition, parking, textbooks, extra fees, and everything else, you also have basic living expenses to pay for as well.

All of these costs are either brand new or somewhat new to you most likely as well, so you might not even know how to survive on a budget, let alone a college budget.

Don’t worry, though, surviving on a college budget is possible. Learning how to save money in college is possible!

Related post: How I Paid Off $40,000 In Student Loans In 7 Months

Whether you are trying to survive the whole year off of what you made over the summer or if you have a steady job throughout the school year, there are ways to budget your money and not fall into any extra debt. Plus, you can still enjoy your college years on a low budget as well!

Below are my tips on how to survive on a college budget.

Use your student ID.

Your student ID is good at many places beyond just your college campus. Before you buy anything, I highly recommend seeing if a company offers a student discount.

Your student ID can be used to save money at restaurants, clothing stores, electronics (such as laptops!), at the movies, and more. You may receive a discount, free items, and more all just by flashing your student ID.

After all, you are paying to go to college and you are paying a lot. You might as well reap one benefit of paying all of those high college costs.

Make extra money.

You may need to look into making extra money if you just don’t have enough to survive on. I am a firm believer in making extra money and I think extra time can be wisely spent doing this.

Some online side gigs with flexible schedules include:

  • Blogging is how I make a living and just a few years ago I never thought it would be possible. I made over $150,000 last year by blogging and will make more than that in 2015. You can create your own blog here with my easy-to-use tutorial. You can start your blog for as low as $3.49 per month plus you get a free domain if you sign-up through my tutorial.
  • Survey companies I recommend include Survey Junkie, American Consumer Opinion, Product Report Card, Pinecone Research, Opinion Outpost, and Harris Poll Online. They’re free to join and free to use! It’s best to sign up for as many as you can because that way you can receive the most surveys and make the most money.
  • InboxDollars is an online rewards website I recommend. You can earn cash by taking surveys, playing games, shopping online, searching the web, redeeming coupons, and more. Also, by signing up through my link, you will receive $5.00 for free!
  • Swagbucks is something I don’t use as much, but I do earn Amazon gift cards with very little work. Swagbucks is just like using Google to do your online searches, except you get rewarded points called “SB” for the things you do through their website. Then, when you have enough points, you can redeem them for cash, gift cards, and more. You’ll receive a free $5 bonus just for signing up today!
  • Check out 75 Ways To Make Extra Money for more ideas.
  • Read Best Online Jobs For College Students

Use coupons to stay on a college budget.

Just like with the above, you may want to start using coupons.

By doing so, you can save money on nearly everything. You can find coupons in newspapers, online, and in the mail. They are everywhere so you should have no problem finding them and saving money today.

Related post: How To Live On One Income

Learn how to correctly use a credit card or don’t have one at all.

Many college students fall into credit card debt, but I don’t want you to be one of them.

Many college students will start relying on their credit cards in order to get them through their low college budget, but this can lead to thousands of dollars of credit card debt which will eventually seem impossible to get out of due to significant interest charges that keep building up.

In order to never get into this situation, you should avoid credit cards at all costs if you think you will rely on them too heavily.

You should think long and hard about whether you should have one or not. Just because many others have them doesn’t mean they know what they’re doing! However, if you think you will be good at using them, then there are many advantages of doing so.

Related post: Credit Card Mistakes That Can Lead To Debt

Only take out what you need in student loans.

Many students take out the full amount in student loans that they are approved for even if they only need half.

This is a HUGE mistake. You should only take out what you truly need, as you will need to pay back your student loans one day and you will most likely regret it later.

I know someone who would take out the max amount each semester and buy timeshares, go on expensive vacations, and more. It was a huge waste of money and I’m still not even sure why they thought it was a good idea.

Just think about it – If you take out an extra $2,000 a semester, that means you will most likely take out almost $20,000 over the time period that you are in college.

Do you really want to owe THAT much more in student loans?

Skip having a car.

Most campuses have everything you need in order to survive – food, stores, and jobs. In many cases, you do not need to have a car whatsoever.

By foregoing a car, you may save money on monthly payments, maintenance costs, car insurance, gas, and more.

Related post: Should We Get Rid Of A Car And Just Have One?

Eat out less.

Now, I’m not saying you should stop eating out entirely if you are trying to survive on a college budget. I know how it is to be in college and to want to hang out with everyone. These are your college years after all.

However, you should try to eat in as much as you can, make your own meals, and try to eat out only during happy hours or when food is cheaper, such as during lunch time. Eating out can ruin your college budget!

Have a roommate.

The more people you live with, generally the less you will pay when it comes to rent and utilities. If you are living on your own, then you may want to find roommates so that you can split the costs with them.

This will help you to lower your college budget and you may even find some awesome friends.

Related post: What I Learned Having Roommates

What college budget tips do you have?

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Source: makingsenseofcents.com

How Do Student Loans Work? What You Need To Know About Borrowing Money For School

Have you ever wondered how do student loans work?

how do student loans work

how do student loans workMaybe you’re thinking about going to school and taking out a student loan, perhaps you are a parent trying to help your child find the best options, or perhaps you are about to start paying down your student loan debt.

Whatever your case may be, I am hoping today’s article will help you learn more about how student loans work, so that you can be prepared for your future.

There are just so many different components to student loans, and it can make it very confusing to understand how student loans work.

There are federal vs. private loans, you can pay them back in a variety of ways, and more.

Student loans are a big part of many people’s lives.

The average amount of student loan debt per borrower is $35,359 and 44.7 million people in the U.S. have student loan debt.

Not only that, but 10.8% of student loan debt is at least 90 days past due, and there is $96.1 billion in Parent PLUS student loan debt.

I’ve talked to lots of different people about student loans over the years, and many of them have borrowed more than they should have or made other decisions about their student loans that have negatively impacted their life for years to come.

Many of those people simply didn’t understand how student loans work.

This is why what I’m sharing with you today is so important. Student loans can follow you around for years, and your student loan debt can impact any other major life decisions you make, like buying a house, having kids, the job you get, retirement, and more. 

Knowing how student loans work can help you make the best decisions when borrowing money for school and as you pay them back.

Some of the topics discussed in this article include:

  • How do you get a student loan?
  • What is FAFSA?
  • What’s the difference between federal and private student loans?
  • How does paying back student loans work?
  • How does student loan forgiveness work?
  • Should parents pay for college?
  • Should parents cosign on student loans?
  • How else can parents help their children?
  • Should you refinance your student loans?

In today’s article, you will learn how student loans work so that you can approach student loan debt with as much knowledge as possible.

How do student loans work?

 

What is a student loan?

If you want to know how do student loans work, the first thing you need to know is exactly what student loans are.

A student loan is a money that is borrowed from the government or a bank to be used for college costs. Student loans may be used for tuition, dormitories (room and board), books, food, or other living expenses.

Student loans have to be paid back. 

Before you take out a student loan, you should ask yourself questions such as:

  • Will I be able to afford these student loan payments when they are due?
  • What is the interest rate?
  • When do my monthly student loan payments start?
  • Does interest build on my student loans while I am in school?

I’m going to explain more about some of these questions in just a minute.

How do you get a student loan? How much do student loans give you?

How do you take out a student loan? How does getting a student loan work?

First, you will want to complete your FAFSA form, which is the Free Application For Federal Student Aid (I will be going more over FAFSA in the next section).

After you have submitted your FAFSA, your school will send you a financial aid offer, which may include student loans, grants, and scholarships. This letter will tell you how to obtain the loans mentioned in your financial aid offer. This will involve selecting the amount you want — you do not have to take the full amount offered, such as if you are able to pay for some of your tuition in cash.

In order to get the student loans you will also have to complete entrance counseling so that you understand your student loans, as well as sign and agree to the terms of the student loans. 

When your student loan is approved, first your school will apply the loan funds to your tuition, fees,  and dormitory/meal plan. Any money leftover will be returned to you.

I do not recommend taking out more than you need for school costs, as these will add up quickly over the years, and your student loans may explode without you even realizing it.

And, it is very common for your financial aid offer to list a higher student loan amount than what you actually need.

Content related to how student loans work:

 

What is FAFSA?

Like I said, FAFSA stands for Free Application For Federal Student Aid.

It is a form that is filled out by college students or those who are about to enter college to see if they qualify for financial aid.

After you fill out a FAFSA form and if you qualify for student financial aid, you may be rewarded with a grant, scholarships, loans, and/or a work-study program.

These different awards can help you pay for college.

Here are the FAFSA tips you need to know:

  • To fill out your FAFSA, you should go to Studentaid.gov.
  • Pay attention to FAFSA deadlines, which you can find here. Many don’t file their FAFSA on time. Yes, there is a deadline. You should make note of the deadline and try to submit your FAFSA way before the deadline.
  • Many people make the mistake of not filing out their FAFSA at all. You must fill out your FAFSA if you want to qualify for any kind of money for school.
  • You need to fill out your FAFSA every year that you attend school. It’s not a one and done type of form. Please, remember to do this each year. I recommend making a note on your phone calendar for the next several years so that you don’t forget.
  • Collect the documents that you need to fill out your FAFSA form. To fill out your FAFSA, you will need your Social Security number, federal income tax returns, W2s, and asset information.
  • Make sure everything is correct on your FAFSA form. Double, triple, or even quadruple check your name, address, Social Security number, tax information, and more. Errors can lead to delays in receiving financial aid!
  • Make sure you contact your financial aid office at the college or university to see if there are any other forms you should fill out with your FAFSA. The financial aid office is there to help you, so do not hesitate to ask questions.

 

What should I know about student loans?

There are many things to research when you take out student loans or enter a repayment plan. Understanding your interest rates and payments can help you pay off your student loans faster and save money.

Here’s what you should understand about how student loans work:

  • Your interest rate. Some student loans have fixed interest rates, whereas others might have variable rates. You’ll want to figure out what the interest rate on your loans are because that may impact the student loan repayment plan you decide on. For example, you might choose to pay off your student loans that have the highest interest rates first so that you can pay less money over time.
  • What a monthly payment means. Many people believe that a monthly payment is all that you have to pay, are allowed to pay, or that by paying just the minimum monthly payment you won’t owe any interest. These three things are so incorrect! Even if you pay the minimum monthly payment, you will most likely still owe interest charges (unless your interest rate is 0% – but that is very unlikely with student loans).
  • Student loan reimbursements. Some employers will give you money to put towards your student loans, but you should always do your research before assuming it’s just that simple. Some employers require that you work for them for a certain amount of time, you have great grades, good attendance, and they might have other requirements as well. There are many employers out there who will pay your student loans back (fully or partially), so definitely look into this option.
  • Auto-payment plans. For most student loans, you can probably auto-pay them and receive a discount. Always look into this as you may be able to lower your interest rate by 0.25% on each of your student loans.

 

How do federal student loans work? 

Federal student loans are offered by the U.S. Department of Education, and there are four types of direct loans available. These include:

  • Direct Subsidized Loan – These are student loans for eligible undergraduate students who have financial need to pay for college.
  • Direct Unsubsidized Loan – These are student loans for undergraduate, graduate, and professional students, but is not based on financial need.
  • Direct PLUS Loans – These are student loans for graduate and professional students and parents of dependent undergraduate students. You do not need to show financial need for a Direct PLUS Loan, but a credit check is required.
  • Direct Consolidation Loans – These are loans that allow you to combine all of your federal student loans into one loan with one loan servicer.

 

How do private student loans work?

You may find private student loans through a bank, credit union, or through the college you are going to. How student loans work through a private lender is much closer to how personal loans work. 

Your payments may start while you are in school, you may need a cosigner, and your interest rate is sometimes higher than a federal student loan.

How does student loan interest work?

This is one thing many people don’t realize about how student loans work — your student loans may all have different interest rates. The interest rates on your loans depend on the kind of loan you take out and when you borrowed the money. 

With Direct Subsidized Loans, the U.S. Department of Education pays the interest on your loan while you’re in school at least half-time, for the first 6 months after you leave school, and during a period of deferment.

This is different with Direct Unsubsidized Loans in that with Unsubsidized loans, you are responsible for paying the interest during all periods.

How does paying back student loans work?

Most student loans have a 6 month grace period where you don’t have to make your first payment until 6 months after you graduate or if you go to school less than half-time.

But, this all depends on the student loan, so you will want to make sure that you read the terms on your loan.

You’ll want to make sure that your loan servicer(s) has your current address, as you will be required to pay your monthly loan payment once it’s due. Your address may change over the years, so this is extremely important so that you do not forget to pay. I suggest knowing this information before you finish school so you are prepared.

Even though you may not have to pay back your student loans right away, that doesn’t mean you can’t.

You can start paying back your student loans early, and you can pay more than the minimum monthly payment as well. Doing this will help you to pay off your student loans more quickly and possibly save you money.

How does student loan forgiveness work?

Teachers, nurses, and government employees may be eligible for student loan forgiveness through a program called Public Service Loan Forgiveness (PSLF). It is only available for Direct Federal Student Loans, including Direct Plus and Direct Consolidation Loans.

To qualify, you must be working full-time, make 10 years of on-time monthly payments under a qualifying repayment program, which include:

  • Income-Based Repayment Plan (IBR)
  • Income-Contingent Repayment Plan (ICR)
  • Pay As You Earn (PAYE)
  • Revised Pay As You Earn (REPAYE)

You will have to certify your income and repayment plan every year, and PSLF does not apply to private student loans.

PSLF is one of the most confusing aspects of how student loans work, so I highly recommend that you contact your student loan servicer as soon as possible. They will explain exactly how to move forward with forgiveness.

 

Should parents pay for college?

Do you think parents should help pay for their children’s college education? Do you think parents should be required to pay for their children’s college education?

These are tough questions to ask and to answer, but they are very important when thinking about the ever increasing cost of higher education.

I’ve read countless stories of parents who have $200,000 in student loan debt for their children, and it’s that kind of debt that causes those parents to struggle financially, be unable to reach their retirement goals, etc. These parents end up drowning in debt because they just honestly want to help their children get through college. What they don’t realize, though, is that there are other ways to help your kids graduate from college.

Please don’t be one of the many parents paying for college simply because you think you have to. If you can truly afford it, then do whatever you want with your money.

With everything being said, I must admit that I am not a parent myself, and I understand that it is probably a difficult thing for parents to face.

I believe that parents should only fund their child’s college education if the parent is on track for retirement.

This is because there are multiple ways to pay for college (paying for it with cash, student loans, grants, scholarships, etc.), but there is only one way to fund your retirement.  

Remember, you cannot take out a loan for your retirement!

Due to this, you should not wreck your retirement plans to help your children through college. You should analyze your financial situation and see if you are track for retirement to see if helping your children through college is possible.

If it’s not possible, be honest with yourself and your child. Ultimately, what motivates parents paying for college most of all is love for their children. There are many ways to support and show your children how much you love them, and it isn’t just paying for college.

You can learn more at Parents Paying For College – Is This A Good Idea?

 

Should parents cosign on student loans? How do student loans work for parents?

Here’s an interesting statistic: the default rate on student loan debt averages around 10%. 

So, what does this mean? This means that if you cosign a student loan for your child and they default, you will be stuck with the bill. This is one thing I wish more parents knew about how student loans worked before they borrowed money to pay for their child’s tuition.

While you may think that you have a great relationship with your child, everything can change once money is in the mix. In my experience, not many things cause as much tension in family relationships as money does. I have heard of several people who had a falling out with their parents and actually purposely stopped paying their student loans because they knew that their parents would cave in and start paying for them.

Yes, this is a disgusting behavior, I know, but it does happen to some parents paying for college.

College, of course, can be very expensive, which means that many people take out student loans in order to simply “afford it.” Before you cosign on student loan debt and pay for your child’s college education, I hope you fully understand how student loans work and the consequences that can come from taking them out..

Learn more at Would you risk your relationship and finances to cosign?

 

How else can parents help their children?

If you cannot afford to pay for your child’s tuition while staying on track for retirement, or if you decide that you just do not want to pay for their college expenses, there are many other ways that you can help and support your kids while they are in school.

Some things you can do include:

  • Emotionally support them. Emotional support means listening to their troubles, giving advice, and helping them come up with a solid financial and college plan. You don’t have to agree with what they’re doing, rather be there when you need them.
  • Help your child understand personal finance. Teaching simple skills, such as creating a budget, will help your children greatly, not just in college but throughout their adult lives.
  • Assist your child in learning how to make money. There are tons of ways to make extra money, and helping your children find ways to do so can help them avoid student loans and/or pay them back.
  • Show your children affordable alternatives. Choosing the right college and the right course of study can be overwhelming for a young person fresh out of high school. For example, your child may only think they should go to an expensive private university, but explain more affordable alternatives, such as going to community college or a state university. These options aren’t any less valuable, and they might actually be better suited for your child’s needs. Also, help them learn about ways to cut college costs as well.
  • Help your child apply for school and scholarships. Applying for college can feel confusing for kids, but helping them find schools and helping with the application process can make it easier. There are also numerous scholarships that your child may qualify for. Some may require them to write essays, whereas others are based on high school grades. It can take a little work to find which scholarships your child is eligible for, but finding scholarships will help them avoid as many student loans. Also, most scholarships take very little effort and are given away by the college itself, which makes it a no brainer to apply for them!
  • Help your child in other ways. For some reason, there is this myth out there that parents paying for college have to pay for absolutely everything else too. Set limits instead of paying for their tuition, textbooks, food, dorm, car, and everything else. You might help by giving them emotional support, letting them stay in your home while they are in college, helping them find ways to save money for college, helping them cut their college expenses, paying for something smaller such as textbooks, and more.
  • Set your child up with a personal finance tracker. Financial trackers and apps are great tools for young people to use to see how they are doing with their finances. Platforms like Personal Capital allow you to aggregate and track all of your financial accounts in one place. While your child might not use their retirement tracker yet, you can sign up too and see where you’re at for retirement. You can sign up for Personal Capital for free here.

Also, there are many great books that you can recommend to your children, such as: Student Loan Solution and Broke Millennial.

 

Should you refinance your student loans?

Student loan refinancing is when you apply for a new loan that is then used to pay off your other student loans.

This is usually a great option if you borrowed private student loans and your credit score is better now than when you originally took out your student loans.

By refinancing your student loans, you may qualify for better repayment terms, a lower interest rate, and more. This is great because it may help you pay off your student loans quicker.

The positives of refinancing student loans include:

  • One monthly payment to simplify your finances
  • Lower monthly payments
  • Lower interest rates, and more

Companies, such as Credible (this is an affiliate link, and I recommend them), allow you to refinance your student loans. With refinancing, the average person can save thousands of dollars on their loan, and that’s incredible! You can save a lot of money with student loan refinancing, such as with Credible, especially if you have high interest federal or private loans. 

Credible’s platform is similar to the way Expedia works for finding flights – with Credible, you simply search the available rates to find the best student loan rate for you. There is no service fee, no origination fee, and no prepayment penalty if you end up paying off your student loans faster.

To use Credible, it takes less than 10 minutes and just follow these steps:

  1. Fill out a quick simple form (2 mins) – It only takes one form to see the many different lender options.
  2. Choose an option you like (2 mins) – On Credible, you can easily compare the different lenders all in one place.
  3. Provide your loan details (3 mins) – After providing more information about yourself, it takes one business day to receive your finalized offer.

Before refinancing a federal student loan, though, you will want to think about different federal benefits that you may be giving up. You may give up income-based repayment plans, loan forgiveness for those who have certain public service jobs (including jobs at public schools, the military, Peace Corps, and more). By refinancing your federal student loans, you may be giving up any future options for these loan forgiveness programs. 

However, keep in mind that by refinancing your student loans, you may receive lower monthly payments, lower interest rates, and more. This may help you pay off your debt much faster. For me, I didn’t qualify for any loan forgiveness, so refinancing would have definitely helped me if I knew about it back then.

 

What you should think about before you refinance a student loan.

Before you decide to refinance a student loan, I wanted to talk about what choices you have with handling your student loans.

  • If you want to take advantage of deferment, loan forgiveness, or some other sort of federal student loan program, you may want to think twice before refinancing your federal student loans. For more information, I recommend reading USA Today’s article What careers can get you student loan forgiveness?
  • Be careful with variable interest rates. While they may seem appealing at times, remember that your interest rate may fluctuate. If you currently have a variable rate, you may want to refinance into a fixed-rate, which can make refinancing a great decision for you.
  • Refinancing your student loans may lead to increasing your loan term, which can lead to lower monthly payments. However, it can also lead to higher interest charges over the life of your loan.
  • If your credit is better than it was when you first took out your student loans, you may be able to qualify for better terms and a better interest rate by refinancing your student loans. I recommend shopping around to see what you can get. Start out by checking out Credible!

What to know about student loan debt? Do student loans affect your credit score?

Here are just a few more important things to know about how student loans work, specifically debt. 

You cannot get rid of student loan debt through bankruptcy. But unlike other kinds of loans, federal student loans do not have to be paid back by your estate if you die before they are paid in full. That is not the case for private student loans — these must be handled the same way as your mortgage, car loan, etc.

Your student loan debt can affect your credit score, and here’s how:

  • On-time payments are good for your credit score, but late payments can have a negative impact.
  • Defaulting on your student loans looks very bad on your credit report and can stay there for 7 years.
  • Parent PLUS Loans show up on the parent’s credit report, not the students. Keep this in mind if you are taking loans out for your children.

How do student loans work? In summary

Understanding how student loans work is a very important part of borrowing money for school, and there is nothing wrong with borrowing money for school.

Most people simply don’t have enough cash saved to pay for school, and student loans make school more affordable. However, don’t forget that there are scholarships, less expensive schools, grants, and opportunities to make money to pay for school.

When you do need to borrow money from school, only take out what you actually need to borrow. Also, do your research to make sure you are borrowing money at the best rates — very important for private loans.

Your student loans will be with you for several years, so make sure you are making the smartest and most informed decision possible. 

What else would you like to know about how student loans work?

*Statistics about student loan debt from Investopedia, Forbes, US Department of Education

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6 Ways I Saved Money On College Costs

Check out this list of ways to save money on college costs. This is a great list!

Check out this list of ways to save money on college costs. This is a great list!How much does college cost? This is a question many wonder. There’s rarely a week that goes by where I don’t receive an email from a student or parents of a student who are looking for ways to cut college costs. That’s why today I want to talk about college costs and how you can create a college budget that works so that you can save money in college.

College is very expensive – there is no doubt about that.

However, I want you to know that it IS possible to get a valuable college degree on a budget!

The average public university is over $20,000 per year and the average private university totals over $45,000 once you account for tuition, room and board, fees, textbooks, living expenses and more.

Even with how expensive college can possibly be, there are many ways to cut college expenses and create a college budget so that you can control rising college costs.

Continue reading below to read about the many different ways I cut college costs. While I was not perfect and still racked up student loan debt, I did earn three college degrees on a reasonable budget.

Related articles:

1. Take classes at a community college to cut college costs.

Whether you are in college already or you haven’t started yet, taking classes at a community college can be a great way to save money.

Earning credits at a community college usually costs just a small fraction of what it would cost at a 4-year college, so you may find yourself being able to save thousands of dollars each semester.

There is a myth out there that your degree is worth less if you go to a community college. That is NOT TRUE at all. When you finally earn your 4-year degree, your degree will only say where you graduated from and it won’t even mention the community college credits at all. So this myth makes no sense because your degree looks the exact same as everyone else’s’ who you went to college with. You might as well save money because it won’t make much of a difference.

I only took classes at a community college during one summer semester where I earned 12 credits, and I still regret not taking more. I probably could have saved around $20,000 by taking more classes at my local community college.

Also, you are most likely just taking general credits at the community college, so it’s not like you would be missing much by taking classes there instead of a college that has a better reputation for the major you are seeking.

If you do decide to go to a community college, always make sure that the 4-year college you plan on attending afterwards will transfer all of the credits. It’s an easy step to take so do not forget! You should do this before you sign up and pay for any classes as well as to make sure that ALL of the classes will transfer succesfully.

2. Take advantage of high school classes to lower your college budget.

Many high schools allow you to take college classes to earn both college and high school credits at the same time.

This is something I highly recommend you look into if you are still in high school, as it saves time and is one of the best ways to save money on college costs.

When I was in my senior year in high school, nearly all of my classes were dual enrollment courses where I was earning college and high school credit at the same time. I took AP classes and classes that earned me direct college credit from nearby private universities. I left high school with around 14-18 credit hours (I can’t remember the exact amount). This way I knocked out a whole semester of college. I could’ve taken more, but I decided to take early release from high school and worked 30-40 hours a week as well.

3. Take all the credits you can to stay within your college budget.

At many universities, you pay a flat fee. So whether you take 12 credit hours or 18 credit hours, you are paying nearly the exact same price.

For this reason, I always recommend that a student take as many classes as they can if they are going to a college that charges a flat fee tuition.

If you think you can still earn good grades and do whatever else you do on the side, definitely get full use of the college tuition you are paying for!

4. Apply for scholarships to lower your college costs.

Before you start your semester, you should always look into scholarships, grants, FAFSA, and more. You usually have to turn in any paperwork around spring time for the following semester, so I highly recommend doing this right now if you are going to college in the fall.

Another myth will be busted right now. Many believe that all scholarships are impossible to have or it means you have to win a contest. That is just a myth.

I received around $16,000 a year in scholarships to the private university I attended. That helped pay for a majority of my college tuition. The scholarships were easy for me to get as they were all just because I earned good grades in high school and scored well on tests. I received scholarships to all of the other colleges I applied for as well just for good grades, so I know they can be found as long as you do well in high school!

There are other ways to find scholarships as well. You can receive scholarships from private organizations, companies in your town, and more. Do a simple Google search and I am sure you will find many free websites that list out possible scholarships for you to apply to.

Tip: Many forget that you usually have to turn in a separate financial aid form directly to your college. Don’t forget to do this by the deadline each year!

5. Search for cheaper textbooks to lower your college budget.

Students usually spend anywhere from around $300 to $1,000 on textbooks each semester, depending on the amount of classes they are taking and their major.

For me, many of my classes required more than one book and each book was usually around $200 brand new. This means if I were to buy all of my college textbooks brand new, I probably would have had to spend over $1,000 each semester.

I saved a decent amount of money on college textbooks by renting them and finding them used. Renting them was nice because I just had to pay one fee and didn’t ever have to worry about what to do with the textbook after the class was done, as I only had to return them. There was no worrying about the book being worthless if a new edition came out, which was nice! Buying books used was nice occasionally as well just because sometimes I could make my money back.

I recommend Campus Book Rentals if you are looking for textbook rentals. Their rentals are affordable and they make getting the textbooks you need easy.

Read: How To Save Money On Textbooks + Campus Book Rentals Review

6. Skip the high price of living on campus to cut your college budget.

To save more money, I decided to live on my own. I didn’t have the option of living at home after high school and living on campus would have cost me a ton of money.

Instead, I found a very cheap rental house (the house was VERY small and probably could have been considered a tiny home) and was able to somewhat easily commute to work and college from it. I probably saved around $500 a month by living on my own instead of on campus, and I learned a lot by living on my own at a young age as well.

If you can live at home though and want to save money, I highly recommend it if it’s an option for you. You can save thousands of dollars a semester by doing this!

I understand that some are against this because it may impact your “college experience,” but I think most people would be fine not living on campus, especially if it’s not in the budget. You could probably save around $40,000 over the years on your degree by living at home.

How did you cut college costs and control your college budget? How much student loan debt did you have when you graduated?

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The Best Cities for Working Students in 2017

The Best Cities for Working Students in 2017 – SmartAsset

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Not all students can cover the cost of their college education with the grants or scholarships in their financial aid packages. Some begin their college careers by taking out student loans, while others look for part-time jobs and work-study positions. Students who are trying to avoid taking on too much debt may wonder what their job prospects look like outside of their college campuses. To help them out, we ranked the best cities in the country for working students.

This is the second annual study of the best cities for working students. Read the 2016 study here.

Study Specifics

For the second year, SmartAsset took a look at the best cities for working students. Our analysis focuses on the employment opportunities for college students attending the top-ranking four-year university in 232 different cities.

To complete our study, we created two different scores: a college value score (based on findings from our study of the best value colleges in America) and a jobs score (based on three factors, including the local minimum wage, the median rent and the unemployment rate for adults with some college education). It is important to note that we changed our methodology slightly this year, so this year’s study is not directly comparable to last year’s. For a full explanation of how we conducted our analysis, read the methodology and data sections below.

See how long it’ll take to pay off your student loans.

Key Findings

  • Minimum wages are rising. Nineteen states and dozens of cities saw their minimum wages increase at the start of 2017. Any boost in pay is sure to benefit working students and other low-wage workers around the country.
  • Check out the Midwest. Four of the best cities for working students are located in this region, thanks in part to their low unemployment rates. In places like Lincoln, Nebraska and Fargo, North Dakota, the unemployment rate among adults with some college education is below 2%.
  • New England ranks well. Four other cities in the top 10 are part of this region, where minimum wages are relatively high. In Portland, Maine and New Britain, Connecticut, for example, the minimum wage is above $10.

1. Springfield, Massachusetts

Springfield is about 91 miles from Boston by car. One reason why it’s on our list of the best cities for working college students is its high minimum wage. On Jan. 1, Massachusetts’ minimum wage rose from $10 to $11. Massachusetts, Washington state and Washington, D.C. currently have the highest minimum wages in the nation. That’ll change eventually since cities and states like California are planning for their minimum wages to hit $15.

2. Lincoln, Nebraska

Thanks to its strong job market conditions, Lincoln ranks as the second-best city for working students in 2017. The unemployment rate for workers with either an associate’s degree or some college education is just 1.5%, according to one-year estimates from the 2015 American Community Survey. Among all workers ages 16 and over, the city’s unemployment rate is about 3.1%

In addition to having access to a lot of job opportunities, students who attend the University of Nebraska-Lincoln can get plenty of bang for their buck. Our analysis of the best value colleges found that UNL was the top-ranking university in the Cornhusker State in 2015 and 2016.

3. New Britain, Connecticut

New Britain has a few different colleges. Central Connecticut State University is the oldest public university in the state of Connecticut. Finding a job in New Britain shouldn’t be too difficult for students trying to pay their way through school. The unemployment rate for workers with some college education is just 3%.

4. Omaha, Nebraska

This is the second time that Omaha has appeared on our list of the best cities for working students. Last year, the “Gateway to the West” took the 10th spot on our list. Since we published the 2016 edition of our study, the city’s unemployment rate for workers with some college education has fallen to 2.7%.

Working students in Omaha face a diverse economy. Key industries include health services, education, transportation and utilities, meaning that there are a variety of options for students looking for part-time gigs and internships.

5. Portland, Maine

Finding part-time work may not be difficult for students in Portland, Maine. In this city, the unemployment rate among adults with an associate’s degree or some college education is just 3%.

Students who live off campus may have to pay a pretty penny for rent. The median rent in Portland is $923. Fortunately, the city’s minimum wage is relatively high at $10.68.

Related Article: The Best College Towns to Live In – 2016 Edition

6. Tempe, Arizona

Arizona is another state that saw its minimum wage increase on New Year’s Day. In fact, it went up by almost $2. Thanks to the approval of Proposition 206, part-time and full-time workers will now earn $10 per hour. By 2020, the minimum wage will be $12. That’s good news for working students attending one of the many colleges and universities in Tempe, such as Arizona State University.

7. Tacoma, Washington

Tacoma is a mid-sized city in southwest Washington. The unemployment rate for workers in the city with some college education is 5.6%. According to the Census Bureau, that’s lower than the unemployment rate among all adults in Tacoma ages 16 and over (6.5%).

The state of Washington has one of the highest minimum wages in the country and Tacoma’s minimum wage is a bit higher. In 2017, working students in Tacoma will get paid $11.15 per hour.

8. Fargo, North Dakota

Fargo has the lowest unemployment rate in our study among workers with some college education: 0.6%. And thanks to the state’s low income tax rates, working students don’t have to worry about taxes taking a big bite out of their paychecks. Best of all, many students attending colleges in Fargo have access to a quality, yet affordable education. For the 2016-2017 school year, base tuition at the North Dakota State University – the top-ranking college in the state according to our best value colleges list – will be less than $7,000.

9. Lowell, Massachusetts

Since we released the 2016 edition of our analysis, the median rent in Lowell has increased by about 9%. But the state’s minimum wage has risen as well. College students who need to find part-time jobs can expect to be paid at least $11 per hour in 2017.

10. Sioux Falls, South Dakota

Sioux Falls is the largest city in South Dakota and has a population of roughly 171,530. The unemployment rate for workers with some college education is only 2.4%. So students have a good chance of finding a job, particularly if they’re looking for positions in one of the city’s top industries, such as the banking, food processing or bio-medical fields.

Methodology

To find the best cities for working students in 2017, SmartAsset found the unemployment rate (for workers with some college education or an associate’s degree) and the median rent for 232 U.S. cities with at least one four-year college or university. We also pulled the minimum wage for each of these places.

We took each of our three factors (the median rent, unemployment rate and the local minimum wage) and found the number of standard deviations each city rated above or below the mean. Then we totaled those values and created a single job score reflecting the strength of the job markets in all 232 major cities.

We also developed a score using the index from our study of the U.S. colleges offering the best bang for your buck (based on several factors including average starting salaries and the cost of college tuition). Whenever we had a city with multiple schools on our list of best value colleges, we looked at data for the local top-ranking school (based on our analysis).

Finally, we combined our job score with our college value score, giving the job score triple weight and the college value score full weight. We created our ranking by assigning each city a score between 0 and 100. The highest-ranking city for working students received a 100 while the lowest-ranking city for working students received a 0.

Note that in the 2016 edition of our analysis, we created our ranking by averaging our two scores. This year, we changed our methodology slightly to give more weight to our job-related factors.

Data Sources

Rent and unemployment data are based on one-year estimates from the U.S. Census Bureau’s 2015 American Community Survey. Minimum wage data is based on the appropriate city, state or federal minimum wage.

In some states, the minimum wage for large companies is higher. In these instances, we used the state’s lowest minimum wage (i.e. the minimum wage for small businesses). In states with a different minimum wage for small business employees with benefits, we used the minimum wage for employees without benefits. In the states with a minimum wage that’s below the federal threshold, we used the federal minimum wage.

The data analysis for this study was completed by Nick Wallace.

Questions about our study? Contact us at press@smartasset.com.

Photo credit: ©iStock.com/oneinchpunch

Amanda Dixon Amanda Dixon is a personal finance writer and editor with an expertise in taxes and banking. She studied journalism and sociology at the University of Georgia. Her work has been featured in Business Insider, AOL, Bankrate, The Huffington Post, Fox Business News, Mashable and CBS News. Born and raised in metro Atlanta, Amanda currently lives in Brooklyn.
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