A survey by the Princeton Review reveals that college-bound students are more worried about debt than getting into their dream college. President Obama’s recent 10% cap on loans promises to help students in the long run, however the effects to this decision may take a while to materialize. True, you cannot bring down rising college tuition but what you can do, believe it or not, is send your kid to college and have her graduate in 2018 with at least manageable debt.
So without further adieu, here are ten ways in which you can better manage your student debt.
1. Numero Uno
Suppose you are to enroll in a nursing school for Bachelor of Science in Nursing (BSN) degree. Do not take out loans that exceed your first year’s expected salary. Let’s say the median yearly salary of registered nurses is $65,470. This number is your limit to borrowing essentially. If you borrow more than $65,470, then you’re likely to struggle making those dreaded loan payments.
2. Federal loans 1, Private loans 0
If you do need to borrow money, your first stop should be the federal government. The loans offered by them have fixed interest rates. You can also defer them due to economic hardship, unemployment, etc. Private loan interest rates are never fixed. Should you need to avail them, take them out only when you have used up all your federal loan options. The crux of the matter in this case is that students should know what their financial aid options are.
3. Be Austere
If you are a 20 something and are going to college, staying with mom & dad may not be a bad option. There’s no shame in doing that, especially not now. If you need to live on campus then share a room. Buy used textbooks; better yet spend endless hours in the library for the information you need. Do not get a car, use public transport instead. Cook yourself; don’t eat at your school’s cafeteria. And if at all possible, take prerequisites at your local community college and then have the credits transferred. Being frugal is the key here.
4. Know your education tax benefit
The Lifetime Learning Tax Credit, and
The American Opportunity Tax Credit
Find out everything about these two options as they may give you a little bit back when you file for your federal income tax return.
5. Know thy repayment options
Graduates are automatically signed up for the standard repayment plan. Keep following it and you will be able repay your student loans successfully in 10 years. However, this also means that you are paying a big chunk of your monthly income to your lender(s). If you don’t want that, take a look at the following options:
Income-Based, Income-Contingent, Income-Sensitive and Pay as You Earn: You will pay a certain portion back to the lender(s) based on your actual income. Sign up for this if you don’t have a steady income.
Extended Repayment: Pay off your student loan(s) in 25 years instead of 10. You will end up paying more interest though as compared to the standard repayment plan.
Graduated Repayment: Start with lower monthly payments now and gradually start paying more each month. This is similar to the standard repayment plan but with more flexibility.
6. Write one monthly check instead of 5
Consolidate your loans into one for the sake of convenience, lower student loans payment and a fixed predictable interest rate.
7. Stop making payments (for now)
Apply for forbearance or deferment if you’ve lost a job but expect to get hired in a short period of time.
8. Deferment v Forbearance
It is easier to qualify for forbearance but the period during which you stop making repayments, will accumulate interest. Therefore deferment is better because you won’t have to worry about all that interest.
9. Stop making payments altogether (literally and legally)
Your student loan(s) can be forgiven or discharged under certain circumstances. For example, if you teach for a certain number of years, you may be eligible for the forgiveness option. And if you’ve been unemployed due to a disability, you may be able to have your loans discharged, etc.
10. The private student loan(s) conundrum
Some, if not most of the tips laid out above, may not apply to private loans. So what to do with them? Simply talk to your lender. They will listen since they are a business and that would want their money back. As soon as they hear that you are about to fall behind on your payments, they will work with you (for their sake) to get everything back on track.
Taking out loans to have a good time at Spring Break is a bad strategy, doing the same for higher education is a great move for a better future. Taking out loans per se is not a bad thing, not being able to pay them back is. Hopefully by following the above mentioned tips, you’ll be able to avoid that vicious debt trap altogether.