Is your student loan burden overwhelming? Not alone: The US owes almost $1.6 trillion in student debt. 1 Only the nation’s mortgage debt dwarfs that.
Student loan debt makes it difficult for college graduates to purchase a house. Politicians discuss what to do about the situation, but ordinary Americans can’t wait.
Maintaining good financial health requires a strategy for managing student debt. We look at ten ways to regain control an advance before you are pais.
1. Total Your Debt
The first step in any financial scenario is figuring out how much you owe. Students frequently graduate with a slew of government and private loans negotiated each school year. So do the math. It’s impossible to pay down, consolidate, or even forgive debt without knowing how much you owe.
As you total your debt, list the conditions of each loan. The interest rates and payback terms may vary. To avoid excessive interest, fees, and penalties, you’ll need these details.
The Department of Education’s Federal Student Aid website can assist students in managing their loans.
3. Consider Grace Periods.
Each loan has a grace period when you gather details. After graduation, you have this much time to repay your debts. Stafford loans provide a six-month grace period, whereas Perkins loans give you nine months.
Once you get the information, you may wish to consolidate all debts. Consolidation minimizes the monthly payment load. Your payback time is extended, which is a mixed benefit. Remember, more time to settle the loan means higher interest payments.
Moreover, the merged loan’s interest rate may be greater than some of your present debts. Compare loan conditions before consolidating.
One crucial point to remember. Consolidation removes deferral and income-based repayment options from certain federal loans.
5. Highest Loans First
As with any debt-payoff approach, pay off the highest-interest debts first. Budgeting money over the total monthly needed payments is one typical strategy.
After that, apply the total monthly payment (regular payment + overage) to the second-highest interest debt. So on. This is a debt avalanche method.
Assume you owe $300 monthly in student loans. A $100 payment is needed for a 4% loan, a $500 loan, and a $600 loan. You would budget $350 each month to pay down student debts, adding $50 to the 6% loan.
Add the $150 monthly payment for the 6 percent debt to the $100 monthly payment for the 5 percent debt to pay it off faster. After that, the remaining 4% loan would be paid at $350 per month until all student debt is paid in full.
6. Repay Principal
To pay off debt faster, pay additional principles wherever possible. The sooner you pay down the principal, the less interest you pay. Since interest is charged monthly on the principal, less principal equals lower interest payment.
Some student loan lenders offer lower interest rates if you agree to have monthly payments automatically deducted from your checking account. For example, the Federal Direct Loan Program provides a 0.25 percent discount, but it adds up, and private lenders may also provide discounts.
8. Examine Other Options
Your loan servicer may be able to work out an alternate repayment plan for federal student loans. Among the alternatives are:
- Gradual repaid: It doubles your monthly payments every two years for ten years. This plan provides for minimal initial payments due to entry-level wages. Extended repayment: This allows you to extend your loan over a longer time, such as 25 years instead of 10, resulting in a reduced monthly payment.
- Income-based repayment: Calculates payments based on AGI at no more than 20% of income for up to 25 years. After 25 years, any remaining debt will be canceled.
- Pay as you go Limits monthly payments to 10% of monthly income for up to 20 years if financial hardship is shown. The requirements might be strict, but you can keep paying once approved even if you no longer have trouble.
- In addition to lowering your monthly payments, these plans and other repayment choices may extend the time you pay interest. They also don’t apply for private student loans.
9. Payments Delayed
Paybacks might be deferred until you find work. You may not be charged interest on a federal student loan if you qualify for deferral.
If you don’t qualify for deferral, you may be able to get forbearance from your lender. Any interest owed during the forbearance period is added to the loan principal.
10. Examine Forgiveness
In exceptional cases, you may be eligible for debt forgiveness (sometimes termed cancellation) or student loan discharge. You may qualify if your school closed before you graduated, you were fully incapacitated, or paying your debts would cause bankruptcy (which is rare).
A less extreme but more detailed possibility is that you were a teacher or other public servant.
Some of these ideas may not work for you. If you’re having trouble paying your student debts, the only terrible alternative is doing nothing and hoping for the best. Neither your debt nor your creditworthiness will vanish.