3/12/2013 6:45 PM ET|
5 steps to deal with student loans
Debt repayment may not have been top of mind when you signed up, and the monthly payments can look scarily large.
When you are 18 years old and on the verge of starting your college experience, you often have no way of understanding the impact that student loan debt will have on your life (once you graduate from college).
In the eyes of the 18-year-old, the numbers are abstract and don't convey what it's like to actually make payments on the loans each and every month.
I was lucky that my student loans were manageable, but even so it was a bit of a shock to realize how hard it is to pay them off. Here are some of my tips from personal experience:
No. 1: Wrap your mind around the numbers, no matter how big.
There's no way around it -- you have to understand exactly what your student loan debt means on a monthly basis. And to do that, you need to compare your student loan payments to your monthly budget. Depending on how big of a percentage of your budget is represented by your student loan minimum payment, you will know what kind of plan is realistic for you.
If your payment is less than 10% of your total monthly budget, then you don't have to worry about your ability to pay. And if your required student loan payment is somewhere between 10% and 20% of your budget, then most likely you can make your payments (and perhaps even add a little extra).
But if your minimum payment is above 20%, and especially if it's more than 30%, then it is going to be a challenge for you to make that payment every month. If that's the case, you will need to take advantage of the advice in the next paragraph.
No. 2: If you can't afford your payments, don't give up -- take action!
It's very important that you don't simply give up if you think you can't afford your monthly payment. Why? Because if you give up, you'll risk becoming delinquent and perhaps eventually defaulting on your loan. Just like with credit cards, making one late payment can have serious consequences, including doing harm to your credit scores and opening you up to being pursued by debt collectors or having your wages garnished (for federal loans).
Fortunately, you can avoid all that! There is an income-based repayment program that allows you to get on a new repayment schedule where your monthly payments are capped at 15% of your monthly income. It does mean that your repayment timeline is extended to 25 years, so you'll have to pay more interest in the long run, but that is a small price to pay if it gives you some breathing room if payments that are too high.
While the IBR program is only for federal loans, many private lenders have similar programs that will allow you to set up an extended repayment schedule. Just call your lender and ask.
No. 3: Know your options and your rights.
But what if you can't make your payments at all? In that case, it's still important to be proactive and make use of forbearance and/or deferment.
Forbearance means that your lender agrees to give you a certain period of time -- perhaps three months -- when you don't have to make any payments on your student loan. This is often granted as a courtesy, especially if you don't have any income and are not able to make a payment. But you have to ask for it and work out the arrangement with your lender. Simply ceasing to make payments without communicating with your lender will usually cause your loan to go into default.
Deferment can also be a great option and is usually available to those who are are in graduate school, unemployed or on active duty in the military. Deferment means that you don't have to make payments and it usually means that your loan or loans are not accumulating interest.
There are other options you should know about, including the Public Service Loan Forgiveness Program, which will forgive all remaining student loan balances after 10 years for anyone who has worked in a qualifying public service job and consistently made payments during those 10 years.
No. 4: Make a plan and stick with it.
So once you've got a monthly payment and a plan that works with your budget, how do you make sure you stick with it? There are a few tips that may come in handy. For one thing, tell your loved ones about your plan and ask them to encourage you along the way -- the power of emotional support from those you trust and care about may surprise you and will help you accomplish your goal.
I would also recommend that you use online tools to help you track your budget and manage your debt. These tools ensure that you stay on top of your plan and help you continue to be motivated by reminding you of your progress each month.
If you need extra money in any given month in order to stick with your goal, you can try freelancing -- using sites like Elance, oDesk or Mechanical Turk -- and make some side money with a small investment of your time. Whether you like writing, designing, crafting or something else, you can probably find someone who is willing to pay for your skills and your time. And that extra money can go toward paying your student loan payments. Who knows, it may even help you pay off your loans early!
No. 5: Stay positive.
This may be the most important of all. By maintaining a positive outlook and brushing off any negative incidents along the way, you will increase the likelihood that you pay off those loans and become debt free. There will always be some hurdles that interrupt your progress and make your path seem much more difficult, so don't be hard on yourself when these things happen. Just accept that they are a part of the journey and "keep on truckin'." Your positive attitude will ensure you continue to do the things necessary to reach your goal. And that will make all the difference.
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This is why I don't read the comment section on anything anymore. Too many trolls. What's your end game for posting super idiotic comments? To prove you are an idiot? Probably.
I am an intelligent person who worked and went to college at the same time and still had to take out loans. Try to find a job that you don't have to work full time and still can pay $10k a year for just college to get a 4 year degree. And I went to a State School! My parents made too much money for me to get any grants but not enough to actually be able to afford to help me at all. I'm a twin, so putting two kids through college at the same time is expensive. And that 10k is not including the room and board. My parents lived too far away for me to live with them and go to the UW in Seattle.
I owe 48k and some of my friends owe over 60k. I now have a masters degree. But when the market crashed there were no jobs for me to take in my field to be able to pay for the graduate degree. This is not a sob story. But YOU idiots who think you know the answer to everything in a one sentence blurb are just ignorant.
I work very hard, pay my taxes, and believe, if given the chance, people want to do a good job and contribute to society. To make the sweeping generalization that we are "moochers" is based on a very miniscule percentage of people who go to college. Most people go to college to better themselves. Those who merely "attend" college and are not up to the challenge fail out very quickly.
Education of it's citizens is something that every country should invest in. I'm sick of the "can't pay for it, don't go" mentality. A majority of people can not afford to go to college, so does that mean that the wealthy are the only ones entitled to an education? A highschool diploma will get you about as far as Walmart or McDonalds. If someone is trying to better themselves and become a productive member of society I think that it something that the government should support.
Of course, then again, uneducated people are easy to control and manipulate. So I'm sure the government likes that.
There is no hope for those of though worked 2 jobs while going to school to get an MBA. Took me 8 years to do this because during that, we had a child that was born severely ill and later died at 8-1/2 months. I worked my way up on a job after graduation to close $100K/yr. Then I was the first car hit in a 4 car pileup at 65mph, from a guy on parole, no drivers license, and it wasn't his car! Now I am on permanent disability with 2 mentally challenged children and making a whole whopping $3K/mo, $1500K/mo is spent on medications for all of us, and for therapy session for us (and that is our co-pay), this is before rent or anything is paid. The student loan program will not let me get released from payment, even though I will never be able to work again, and cannot pay the $435/mo they want. It isn't fair when you received the loans in good faith, got a good job and was making your loan payments, now because you can't, they do not care. It's not that I don't want to pay, it is that I cannot afford to pay. It isn't fair..........I am not a deadbeat trying to beat the system, just trying to survive on 1/4 of what I was getting when I got my loans.
The loans can be transferred to another company that does not go along with these repayment rules. Thanks for telling me now!
Don't take out an unreasonably stupid amount of debt in the first place.
People think that they "have to" take out large loans for college. It's not true.
First, work hard in high school so you can get some scholarships. (OMG! You mean I have to think about college before I turn 18?)
Second, apply for as many scholarships as you can.
Third, take Gen-Ed classes at community colleges (or other cheap places) and transfer them in.
Fourth, don't take out $160,000 in loans if you're going to be at a job earning $31,000 per year.
Fifth, get a part time job while you're in school. Every little bit helps.
A college professor giving a lecture about college, showing that college isn't for everyone.
Simple solution: Join the military. I am all of a day from being done with my bachelor’s in finance from a large university with a job lined up and not one dollar of debt to my name.
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