Of all the things put off until later by university students and graduates, student loans are the worst. They can seem relatively harmless, but that’s not the case. These loans are potentially one of the most financially devastating things a student will face in life, but most students have no idea about or are very misinformed as to their financial options, mainly for the following three reasons.
- Student loans can quickly accumulate interest if not managed properly. Being proactive is critical to effective loan management.
- Many students have more than one loan, resulting in a sum total of loan payments that can be overwhelming. Understanding the risks can help mitigate untimely exposure to unsustainable repayment agreements.
- Excessive loans can negatively impact credit ratings, increasing interest rates and resulting in a higher total cost of ownership for essential items such as a car or home purchase.
To help manage financial repayment of student debt, the following three tips are recommended for new graduates, current students, or anyone struggling with student loan repayment.
First, Know Your Options
There is a wide range of loan types. Federally guaranteed loans generally allow extended, graduated, or income-based payments. Each has advantages. Extended repayment allows you to stretch out repayment up to 25 years. Graduated repayment starts out with a low monthly payment, which then increases about every two years, a good option if you expect your income to also increase. Income-based payments are based on a combination of household size, income, and loan balance, which is good if you have an unstable income. Of course, any sort of arrangement that doesnít pay off the loan quickly will result in greater interest paid over the life of your loan. While taking longer to pay off a loan may not be the best option, any option is better than defaulting on an agreed loan schedule, or missing payments, which causes long-term financial damage that could otherwise have been avoided.
Second, Consider a Student Loan Consolidation
If you havenít gone into default on your student loans, then you can ask your lender for a forbearance, or deferment. In simple terms, this means you will be exempted from a set number of payments, although interest will still accrue during this period. There are a number of qualifying conditions, such as medical or personal problems, or other reasons you can document to justify an impact your ability to make payments as agreed. Sometimes you can even qualify if youíre already in default, but in every case, it’s best to find out about your options before you need them. Knowing you have the ability to move a few loan payments to the end of your loan can make a big difference when planning for unexpected financial emergencies, or an inability to make payments as agreed.
Third, Consolidate Loans When Possible; and Get Help If You Need It
Some graduates have numerous loans from various lenders. This can pose a problem when the sum total of payments is unmanageable. In such cases, there are student loan consolidation programs available, some of which will even consider student loans that do not qualify for consolidation programs. In every case, it is best to speak with a person, explain your situation, and see what finance options are available to meet your specific need. The obvious advantages of loan consolidations are lower payments, but a loan consolidation can also provide a reduced or fixed interest rate, and in some cases even offer discounts for scheduling automatic payments. Information on this can be found online at the Federal Student Aid website for Direct Consolidation Loans, or by phone at 1-800-557-7392.
While some might argue that considering any of these options is preparing for defeat, they aren’t accounting for the fact that life doesn’t always go as planned. From an adult perspective, making sure youíre prepared for financial difficulty is no different than knowing where the emergency exits are in a building. Being prepared in advance takes less effort than trying to fix problems in a crisis, and can mean the difference between managing a problem or being overcome by it. Make sure you know your repayment options before you or a friend needs to use them.