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Budgeting to repay your student loan

Katie Schenk - October 21, 2019

Budgeting to repay your student loan

Budgeting for your international masters degree is only the beginning of your post-grad study financing organisation. You’ll also need to budget for your student loan repayments after graduation.

And, preparing for the eventuality of student loan repayments while applying for financing will make it easier for your budget in the long run.

With a Prodigy Finance loan, repayment begins after a grace period which typically includes the period of your study as well as a few additional months (so you can focus on getting a new job and relocation).

Prodigy Finance grace periods:

  • Full-time students: 6 months from the class end date.
  • Part-time students: 3 months from the final disbursement date.

How to budget student loan payments

The student financing you accept (family loans, a Prodigy Finance loan, etc) will, in large part, steer the budget for your student loan repayments as each provider will set aside different terms, amounts, and timings based on their specific offering.

Whether you’re accepting a personal loan or one from a private international lender, it’s critical to set out and understand the repayment terms before finalising the transaction so you can accurately prepare your repayments.

Setting up your student loan repayment budget

Prodigy Finance uses a future-earnings model to determine loan affordability with data from previous grads of each supported school and degree. 

Another way to gauge the amount of repayments your future budget can handle is the 8% rule (as used by institutions like Penn State to guide their students). The idea is that your loan repayments shouldn’t exceed 8% of your post-grad salary.

If your post grad salary allows for greater loan repayments than the minimum amounts provided by your loan provider, it’s beneficial to work your budget on this figure.

But, unless you’re returning to a position or have one lined up before your studies even begin, it can be difficult to determine your future salary - and, subsequently, your student loan repayment budget. It’s necessary to do your research on potential earnings. 

Dealing with variable interest loan repayment amounts

International student loans are typically offered with variable interest rates (rather than fixed interest rates) which means that monthly repayment amounts will vary - and means that adding a little padding in your repayment budget is advisable. (This is where the 8% rule can become useful - as long as your average repayment doesn’t exceed 6% of your annual salary.)

However, reputable loan providers will provide you with all the details you need to work out your monthly repayments; you’ll simply need to understand what goes into your variable interest rate.

Prodigy Finance provides loans based on the 3-month LIBOR rate applicable to the currency of your loan (USD, GBP, EUR) with your personal interest rate floated on top of that. When you receive your conditional loan offer, you will be able to see your personal interest rate and will have a chance to ask any questions you may have regarding the relevant LIBOR rate or APR for your loan.

One reason Prodigy Finance uses LIBOR is that this rate is public and updated independently; borrowers can check the changes in the rate as they like, giving them the tools to work out repayment amounts at any point. Additionally, representative examples provide you with an idea of monthly student loan repayment amount.

And, don’t forget, you’ll receive monthly statements with the exact repayment amount (though it’s still advisable to repay more if you’ve already budgeted for it). 

Other expenses for student loan repayments

In addition to your monthly student loan repayment amount, it’s important to look at other factors that may impact your budget. Depending on the currency of your loan and the country in which it was issued, you may need to deal with forex and transfer costs.

When assessing your loan options, you should consider your post-graduation employment plans as these will affect your repayment budget. 

Prodigy Finance offers several repayment options aimed at reducing the cost of repayment. These options may not be available through all lenders, but every loan provider should be able to provide you with the methods for repayment that they’ll accept. 

Faster repayment of student loans 

The best way to cut the total amount of interest that you’ll pay (on any loan) is to make larger payments any time you can. Keep in mind that some loan providers charge additional fees for early loan repayments, and you need to be aware of these before planning your student loan repayment budget. 

Prodigy Finance does not charge any additional fees for larger repayment amounts or early settlement of your loan, so you can pay as much as you like, as quickly as you like.

Is refinancing an option for student loans?

Another way to reduce the interest payable on your loan is to refinance student loans taken from traditional lenders. These providers work with historical financial data when assessing suitability for loans, as well as the final amount and interest rate.

As Prodigy Finance works with a future earnings model to determine interest rate and the principal loan amount extendable to applicants. Typically, this results in higher disbursements and lower interest rates than offered by institutions looking back rather than looking forward.

If you previously accepted a private student loan with a higher interest rate, you may want to consider refinancing your loan with Prodigy Finance; refinancing can reduce your monthly loan repayments and overall interest paid. 

Refinancing may be just the thing your post-graduate loan repayment budget needs. But, wherever you are on your masters financing journey, it’s never too early to consider your repayment budget.

Ready to see the loan terms Prodigy Finance can offer you?

Prodigy Finance offers international student loans and refinancing options for masters-level education at top universities across the globe. And, we’re always clear on our terms - every step of the way.

Prodigy Finance Ltd is authorised and regulated by the Financial Conduct Authority.

Post updated for accuracy and freshness on October 21, 2019. Originally published on July 17, 2018.

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