Hoping for the best won’t make student loan debt disappear. Sometimes it can feel like you’re not making any progress especially if you’ve pursued a graduate or higher degree or switched majors extending your time in school. Fortunately, good planning, as in all things, can ensure long-term financial health and your creditworthiness.
There are a number of options to consider for keeping up with, accelerating or even forgiving student debt. Let’s have a look at some of them and hopefully there are one or two you may not have considered previously:
Understand Your TOTAL Debt
Knowing what you actually owe is a huge accomplishment. Most students graduate with a number of loans, both federally sponsored and private. And generally with financing arranged for each year in school. So its really important to do the math and understand your total debt so you can make a plan to pay it down.
Know the Terms of Your Debt
Itemize the terms of each of your loans – how much principle and interest you will be paying. Each loan will probably have different interest rates and repayment rules. Know what loans qualify for deferment, loan forgiveness or will allow for flexible payment plans. Some loans offer the chance to switch to a payment plan based on what you’re earning. An Income-Based Repayment or Pay-As-You-Earn may make payments more manageable when keeping track of multiple loans at the same time.
Review Grace Periods
Each loan may have a different grace period, for instance Stafford loans allow a six-month grace period while Perkins loans allow nine months before payment must begin. One way to get ahead a little is to begin saving the actual payment amounts during those grace periods, and then, at the end of the grace period take the money and apply it toward your loans. It will reduce the loans and get you in the habit of putting the money aside.
Though it may lengthen your payoff period, a plus to consolidation may be the lowering of your monthly payment burden. But be cautious because the interest rate for consolidating may be higher than the rates on the individual loans and it will likely lengthen your payoff period. You’ll want to be sure that consolidation will not impact your ability to defer if needed or use income-based repayment plans. Definitely check out how consolidation impacts federal loans.
A good rule of thumb is to payoff loans with the highest interest rate first. Read about the technique known as a debt avalanche to help minimize the time it will take to pay off multiple debts.
Pay Down Principle
Pay extra loan principle whenever possible. Reducing principle reduces the amount of interest paid over the life of a loan since interest is based on the monthly loan principle. And don’t forget, interest paid on student loans is tax deductible up to $2500 per year!
Sign Up for Auto Payments
Some lenders my offer a reduction in loan interest on qualified loans if you enroll in automatic monthly payments. For instance, Sallie Mae offers a .25 percent reduction if you quality. And an added bonus is that auto-deduct eliminates the chance of late fees or missed payments – those can wreck havoc on your credit history and increase what you owe over the lifetime of your loans.
Pay Your Interest During Deferment
If you return to school, are unemployed, experiencing economic hardship, are an active military member or have another approved hardship, opt to continue making interest payments if at all possible because interest on deferred loans gets added back to the principle of the outstanding loans ultimately increasing the payments when you begin to repay.
Continue to Live a Simple “College Lifestyle”
Why stop living frugally when just out of college? Its tempting to start living ‘better’ once you start making money on the other side of of all that hard work on campus. Ramen noodles weren’t all bad, right? Consider sticking with an affordable rent, taking on a roommate to share expenses or temporarily moving back home if parents are amenable. Don’t be surprised though if they want to negotiate some sort of rent and ‘around the house’ assist schedule. Most likely, it will be a much better deal than trying to make ends meet living on your own. But don’t get too comfortable. Stick with your budget and set goals around negotiating for raises or looking for work with a higher paying salary.
Consider living close to your place of employment and walk, bike or take public transit. Imagine life without a car payment, maintenance, insurance, galos, registration, parking and other fees.
And thought its tempting, avoid taking on big debts right away. Making much sought after purchases such as a house, new car or a big wedding after graduation may be best put on hold for awhile.
Explore Loan Forgiveness By Doing Good
Are you interested in serving others? A career in public service may actually help you get your student loans forgiven. Federal borrowers working in the public sector (like government, non-profit, law enforcement, public school administration, public health or military) might be eligible to have some debt forgiven through the Public Service Student Loan Forgiveness Program (PSLF). And, some in-demand professionals such as nurses and teachers may be able to take advantage of special state student loan forgiveness programs.
Organizations such as AmeriCorps, VISTA, Peace Corps, Teach for America and National Health Service Corps all offer some form of student loan forgiveness or reimbursement for your service in helping people. But be aware, only certain loans may qualify and take note of any stipulations and fine print.
Some states and cities are trying to attract young, educated professionals with student loan assistance. Kansas, Detroit, Michigan, Niagara Falls, NY and Saskatchewan, Canada are just a few places offering forgiveness options. But of course, there are strings attached such as having to work at a specific company or committing to staying for a designated amount of time. So understand what is required of you before making the leap.
There is light at the end of the tunnel. Especially with a good working budget and a solid plan for those unexpected life events that are bound to pop up.