Five Tips For Tackling Student Debt
While Congress debates out the merits of President Obama’s student loans proposal, this year, for the first time, delinquent student loan debt in the United States has overtaken in total sum credit card debt, auto loan debt, and home equity debt owed by Americans. In fact, the only thing that Americans owe more than student loans are in mortgages. Clocking in at $966 billion, student loan debt in America is growing at a steady rate towards the trillion-dollar threshold. Furthermore, there are sources that are predicting that student loans will be the next sub-prime loan crisis. So before we get into bursting any bubbles let’s get started on some tips that can help you manage your student debt load and avoid the fallout.
1. Run Before You Walk
Since 2010, all student loans are now handled through the federal government, virtually eliminating private banks from the equation. Whenever possible, opt to choose government-backed loans over those from private lenders. The benefits are numerous, including transparency of the terms of contract, relief programs down the line, and the fact that interest does not accrue during the time that you are in school.
Remember that student loans are distinctly unique from any other loan you will most likely take out in the course of your lifetime. You cannot declare bankruptcy on student loans; they will follow you in some shape and form for the rest of your life.
2. Choose Your Institution Wisely
May 1st is just around the corner, the final date for high school seniors across the country to commit to a single school for their undergraduate experience. So while you weigh campus life against dorm square footage, keep financial cost as a significant part of your decision making process. This advice is just as apt for high school sophomores and juniors as they enter the application cycle—consider applying to colleges that are known for giving generous grants and scholarships. Do not discount seemingly pricey liberal arts college in lieu of your local state school, because often times private colleges tend to have larger endowments and hence more money to throw at you. Minimizing your student loan debt from the get-go is the biggest help in managing the debt load later down the line.
3. Consider Your Payment Options
Private lenders can be tricky to deal with as they lack the clearly articulated relief programs that federal loans offer. When dealing with private lenders, make sure you are told every detail of the consequences for deferring payments. Many of these ramifications are brushed off and rarely articulated in the beginning and are only fully realized much later.
You can potentially ask for partial forbearance, which would allow you to make payments on interest only for a pre-determined amount of time through an agreement reached between you and your lender. Having this discussion is crucial because if you opt to ignore the problem, your loan could potentially go into default, thus incurring a number of avoidable and unfortunate penalties that are much harder to bounce back from.
Deferment is another option that bearers of student debt consider. Pursuing a higher degree often comes with the ability to enter a market of job with higher salaries and greater benefits. This fact still holds true in some fields, of course dependent of your own success skillset. So before signing up for that third masters, consider the potential and realistic benefits of a higher education will give you.
4. Budget, Budget, Budget
Making regular payments on your student loans is the best way to chip away at your debt. It is difficult to manage balancing student loan payments on top of rent, insurance, food costs, etc. Diligence to a budget is easier said than done. Use one of the many online budget applications available to figure out how much money you have coming in and going out, and based on that, how much you can reasonably expect to put towards loans a month.
5. Don’t Ignore Everything Else
One of the biggest mistakes you can make in managing student loan debt is ignoring everything else in life for the sake of your debt. This does not mean you are justified in plopping down minimum down payments on everything and financing everything. Instead, do not let loans prevent you from pursuing new careers, jobs, relationships, retirement savings, and more. Be frank and honest about your debt burden and make decisions accordingly instead of letting your debt lock you into a one track path. Financial freedom is not mutually exclusive with personal freedom.
Whatever you do decide to do, make sure you are always cognizant and actively taking steps to tackle your student debt. The ramifications of going into default are numerous and can haunt you for the rest of your adult life. A smart plan with diligent adherence will go a long way in proper student loan debt management.
Angie Picardo is a writer for Nerdwallet, a personal finance site that offers advice on managing student debt and understanding personal finance.