How to Manage Your Student Loan Debt
It’s no secret: College ain’t cheap – and it’s only getting more expensive.
Over the past 30 years, the cost of an American university education has tripled. The College Board reports that the average tuition for a four-year school is $10,230 – compared to $3,360 in 1988.[1]
If you’ve gone to college in those intervening years, chances are pretty good that you racked up some student debt. In fact, the Federal Reserve estimates that more than 50% of college students in the United States take on some form of debt to pay for school. For the class of 2018 in particular, statistics show that fully 69% of students borrowed some form of student loan.[2]
The Fed also revealed that total nationwide outstanding student loan debt reached a whopping $1.49 trillion in the first quarter of 2019.[3]
Yep, that’s trillion with a “t.”
What’s more, the average debt for these 2018 graduates was $29,800.
Looking at such staggering numbers could make even the most successful grad – who’s actually found a job with a decent starting salary – paralyzed with financial fears. It’s no wonder that it’s called “crippling student debt.” The Fed also says that, upon leaving school, about 20% of former students fall behind on their payments.
So now that it’s time to pay the piper, do you have any idea how you’re going to swing that to avoid falling into the nonpayment category? Here are six solid tips to keep you on the path to successful repayment.
- Pile Your Eggs in One Basket
If you had to borrow multiple times during your school days, you could have several loans, each with different terms. Ditch this confusion: Call your lenders to find out if your loans are eligible for consolidation. You’ll end up with a single monthly payment. What’s more, your debt will have the same terms and the same interest rate (which potentially means that you could get a better interest rate, if any of your loans were unfavorable to begin with).
- Draw Out Your Repayment
If you’ve been out of school for a while and find that the standard repayment period just isn’t going to cut it, consider applying for a repayment extension. If you got a federal student loan, you’re typically facing a 10-year repayment plan. And the good news is that the government offers extended repayment plans that can be up to 30 years. If you financed college with private loans, you might need to haggle a bit with your lender to come up with an extension that works for both parties. But many are amenable to a renegotiation, especially if you’ve established a solid payment history that shows your commitment to repaying your debt.
One word of caution: Stretching out your repayment will likely mean you’ll pay more interest. But the peace of mind knowing that you’re not going to default when you hit the ten-year wall can go a long way in obtaining financial wellness.
- Be Income-Driven
If you’ve been working diligently AND keeping your student debt in good standing by paying on time and in full, you may qualify for income-driven repayment. This is a federal program that allows you to claim “hardship” when your income level can’t comfortably support your monthly payment. Income-driven repayment gives you 20-25 years to repay your debt. At the end of your payment period, as long as you’ve made all of your payments on time, any remaining balance is forgiven.
The catch is that you will pay more in interest, due to the extended payment period, and that you’ll owe income tax on your forgiven amount. But it’s a pretty sweet deal if you can qualify.
(Alternatively, if you’re in a public service job or teach in a lower-income public school district, you could qualify for Public Service Loan Forgiveness and Teacher Student Loan Forgiveness.)
- Throw in Extras Whenever Possible
One of the best strategies for repaying student loans (or really any loans, for that matter) faster is by making extra payments. Student loans typically carry no prepayment penalties, so anytime you are flush with cash, consider dumping some of that into your account. Usually, you can make one-off payments, of any amount, at any time. Consider building in an extra payment on a regular basis: In addition to your 12 monthly payments per year, throw in an additional payment (equal to your monthly amount) every quarter for a total of 16 payments per year.
There’s really no negative to this strategy! But you should contact your lender to clarify that you want to make additional payments several times per year, and that you want your extra payments applied to principal only (not to your next month’s monthly payment) to limit the accruing interest.
- Go Over and Above
As with any debt you owe, always pay at least the minimum amount your student loan repayment requires each month. But there’s never a penalty for paying more than the minimum.
In fact, paying more than the monthly minimum can reduce the cost of your student loans by lowering the interest that continues to accrue on your principal balance. What’s more, you’ll end up paying off your loan a little faster!
- Change Your Terms
Students and new grads typically don’t have excellent credit – they haven’t had much opportunity to prove themselves as responsible borrowers. Lenders consider them risky and, as such, tend to impose high interest on their loans as collateral. But once you’ve established a reputation as a reliable payer, you have a good chance at lower rates by refinancing.
Refinancing can be a powerful way to lower the interest rate on your student loan. If you took out a federal student loan, you will likely find a much more preferable rate through a private lender. This will save you potentially thousands of dollars over the term of your repayment. Plus, refinancing also allows you to change your terms – which can be extremely important if your current loan has a variable rate. Moving over into a lower-interest personal loan can get you a fixed rate that won’t change, giving you greater control over your financial future.
Being in debt, whether it’s student loans or other any other significant financial obligation, can begin to feel overwhelming. Before the stress of your repayment hits too hard, contact the friendly advisors at American Credit Foundation. We’ll work with you to maximize your ability to repay your loan and still find financial satisfaction by budgeting and managing your bills.
[2] https://studentloanhero.com/student-loan-debt-statistics/
[3]https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/hhdc_2018q4.pdf)