Paying off student loans is a big concern for many. From 1996 to 2008, average student debt levels rose 82%. Graduating seniors in 2010 had an average debt of $25,250. For some, student loan debt feels like a prison sentence that they cannot escape. They owe more than they make annually. This can spell financial trouble in the long-term and a lot of undue stress in the short-term. Here are 5 tips for handling that debt in a smarter and less stressful way.
Get “in the know.” It may be a subject you have been avoiding, but you need to get a clear picture in order to take action. Find out who you owe, how much you owe, interest rates, repayment options and grace periods. Federal loans and private loans often have big differences when it comes to the aforementioned terms.
Plan your repayment. Assess your income – current and future – and loan payments. Though you will likely save money by paying off high interest loans first, this isn’t always an option. If your current income is less than your total student loan debt, you likely won’t be able to afford the payments of your current repayment plan. Check into alternative options offered by your lenders such as graduated repayment, extended repayment, income-contingent repayment or income-based repayment.
Take a break. If you are experiencing extreme financial difficult, you may be granted deferment or forbearance. Federal loans may offer both options. Deferment will allow you to stop making payment temporarily. Forbearance may allow you to stop making payments, make smaller payments or extend the payment timeframe. You will need to be granted permission. Please be aware that interest and fees may still accrue during the payment break.
Is forgiveness an option? If you are in the public-service sector – teacher, policeman, firefighter, member of the military – and have made 120 on-time payments, you may be able to have your student loan balance forgiven. You may even be able to do so tax-free.
Avoid (more) debt. If you are getting ready to enroll, avoid borrowing if possible. Consider a community college with a transfer after two years. Attend an in-state public university rather than heading out of state or enrolling in a private university. Take advantage of any and all grants, scholarships and work-study opportunities. Avoid borrowing more than you expect to earn during your first year of employment as this will ensure your debt can be paid off in 10 years rather than 20.