Managing Student Loan Debt
Unless you’re a world class athlete or the child of a well-to-do family, it is nearly impossible to go to college or graduate school without taking on some student loan debt. The types of loans, repayment plans, and terms are as varied as the students who borrow. Companies buy and sell your loans and a torrid pace making keeping up with payments a challenge. Here are some tips to keep your student loan payments under control and perhaps even pay them down early:
Lender Consolidation Programs
Many loans have impossibly short initial repayment terms. If you’ve taken in excess of $100,000 in loans, a 4-year repayment terms means you have to pay around $3,000 per month. Very few recent graduates can handle that kind of payment. Your loans are not actually a single loan, but a group of loans taken every semester throughout your college or graduate school career. Most lenders offer repayment extension and consolidation programs, which can extend the repayment term 15 or 20 years, and put all the loans together into a single payment, thus saving on interest. Inquire with your loan servicer.
Pay a Few Extra Dollars
As we said above, you may make one payment on all of your loans, but they’re actually a group of loans packaged together for payment. Most lenders give you the option to pay more towards the total, or on one particular loan. Find the loan with the highest interest rate or lowest balance. Pay an extra hundred dollar towards that loan and watch it pay off faster. It might take a couple of years, but your total payment will be reduced significantly. Then repeat with the next lowest balance.
Look for Student Loan Forgiveness Programs
The federal government has created incentive programs to help reduce student debt for those that choose certain careers. Doctors who work in certain rural areas or teachers that go to work in inner cities may be eligible for these programs. Assistance can include reduced loan principal, deferment of payment, or reduced interest. The theory is that one shouldn’t be scared away from a rewarding and important job because of student loan debt.
If you’re having trouble making payments, contact your lender or loan servicer. Odds are the have a short term fix to help you get over the hump. But whatever you do, don’t default on payments. It will immediately hit your credit rating making other credit harder to come by. Also, late fees and interest will accumulate making it more difficult to pay down and keep track of your debt. Bankruptcy is not an option. Federal bankruptcy law will not allow you to discharge student loan debt (except in one small, narrow exception that is difficult to prove).
When I read my own student loan contract, I saw only one way out of debt short of repayment… death. Managing student loan debt is one of the most difficult tasks for any recent graduate. But by taking a proactive approach, you will keep your head above water and get on the road to long term financial stability.