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Tackling Your Student Loan Debt Like the Boss You Hope To Be

March 27, 2019 | By Ana Elliot

There are many different kinds of debt out there in the world: credit card debt, auto loan debt, mortgages, and more! Debt, in any of its forms, can hang over our heads like clouds of bad decisions or necessary burdens. One of the fastest growing forms of debt in this country is student loan debt. Americans now owe over 1.3 trillion dollars in student loan debt and the amount just keeps growing!

Most people who go to college in the US can’t afford it without some help. This help can be scholarships but rarely does that cover everything. More often than not, US college students are taking out student loans to help cover tuition. A lot of students rack up thousands of thousands of dollars.

Seven out of ten college grads have student loan debt. The national average for the graduating classes of 2018 was about $30k! An unlucky 19% owe $50k! That is a lot of money to owe when you walk into your post-grad life! If you have student loan debt and you are worried about how to handle it, we are here to help.

Making a Plan for Your Student Loan Debt

The important for student loan debt is to have a plan. Planning can help keep you from defaulting or missing payments and fully understanding the terms of your loans. But, first, let’s make sure you know what kind of student loans you have and how long your grace period is.

What is a grace period? Well, for most student loans, the lender does not expect you to start paying right away. But when do you start paying? The grace period is the period in which, after you graduate, you don’t yet have to start paying back the loan. That is right! Most student loans don’t expect repayment the minute you get your diploma.

This is great news for you because this allows you to get a job so that actually you can pay your loan. Most of us don’t finish school and walk away with a job immediately. Grace periods are also GREAT times to start figuring out your loans and your plan for paying them back.

If you happen to be in good finances, you can even start paying your loan back early (with no interest!). Grace periods varying depending on the types of loans you have. This brings us back to that other point from before. You need to know the types of loans you have.

Most students end up with a collection of loans that they get throughout their entire college careers. One loan rarely will do for all the expenses! Make sure you look through all of your loans and figure out what kind of loans you have and your grace periods are. You don’t want to think everything is fine then get caught unawares! Here are the major types of student loans:

Student Loan Types and Corresponding Grace Periods

  • Direct Subsidized/Unsubsidized Loans
  • Subsidized/Unsubsidized Federal Stafford Loans
  • Private student loans
  • Federal Perkins Loans

Direct Subsidized/Unsubsidized Loans and Federal Stafford Loans have a six month grace period. Most student loans from the government do. Federal Perkins loans are sometimes nine months but this depends on the school you got them from.

Private loans are wild cards. Some of them have 6 month grace periods while others are quite short. Because of these different lengths, it is so important that you figure out how many loans you have and what kind each is. Contact your lenders to make sure you get your specific grace periods.

Do you not remember all your loans? Sadly, most of us as freshmen and sophomores were not great at taking notes or remembering things. If you are worried you don’t know all of the loans you owe, you can always request a free credit report which will list all your lenders. From there, contact the lenders and get the details. Remember, planning is key!

Repayment Plans for Student Loans

Speaking of planning! Let’s talking about repayment plans! Repayment plans are something you were probably told about when you applied for your loan but you might not have paid a lot of attention to. There are quite a few different repayment plans for student loans and most lenders will ask you to chose the one you want when you apply.

If you don’t pick a specific one, they often default you to the standard ten-year repayment plan. Repayment plans vary in length and interest. While a lot of people chose longer repayment plans due to the smaller monthly payments, don’t get me fooled: This means you’ll be paying way more over the life of the loan due to the interest.

You need to pick the repayment plan that fits your financial needs. Also, if you just… picked random plans years ago when you got the loans, don’t worry. You can change your repayment plan at any time and you can do it multiple times! Here are the basic repayment plans:

  • Standard Repayment Plan: This plan comes locked and loaded with a standard monthly payment based on how much you borrowed and your repayment length. The minimum starts at $50 but goes up from there. You have up to 10 years to pay it back but this can be shortened. This is one of the quicker payment plans but, because the monthly payment is fixed, it could hurt your budget if you aren’t making enough money during certain periods. You don’t want your monthly payments to be over 10% of your monthly income. These plans do allow for prepayment though!
  • Graduated Payment Plan: This repayment plan is great for people getting out of college and making a starting salary in their field of study. You aren’t making a lot now but you plan to be making more in the future. These payments start out low then, over time (generally, every two years), get higher. These plans also have a maximum of a ten year period.
  • Extended Repayment Plan: This bad boy is out there for people who have a lot of student loan debt and don’t mind paying for it for a long time. This plan is over 25 years with a lower monthly payment. As I mentioned before, you will be paying more in the long run. Also, this plan is only for those who owe more than $30k in either private loans through the federally insured Federal Family Education Loan (FFEL) program or through the Direct Loan program. Also, different types of loans (either the private loans or the Direct Loan programs) cannot be combined to reach $30k.
  • Income-contingent Repayment Plan: This plan can be applied to federal Direct Loans or Graduate or professional school borrowers. This plan is perfect for people who never have a solid cash flow (We see you, adjunct teachers). This plan sets your monthly payment based on how much you make a month. Your payments will rise or fall to match your salary. Paying this way can take a long time (max 25 years) and if you still have unpaid debt, it can be discharged at the end of the loan term.
  • Income-based Repayment Plan: So, this plan is similar to the above in that it sets your monthly payments around your income but also includes your family size. It also includes limits on what you have to pay annually. This repayment plan also has balance cancel if you reach the end of the loan term (again, max 25 years). If you work a “public service job,” you can also apply to have your loan forgiven.

How to Deal with Student Loan Debt in Tough Situations

Sometimes, paying for your student loan debt will not be easy. You’ll have to juggle multiple payments of potentially varying amounts. You could have different repayment plans for different loans. You might end up in a financial pinch where you are scared of being late or not paying. Perhaps, just keeping track of your loans could result in late payments! Well, there are options available to you!

Deferment and Forbearance

So, what happens if your financials tank and you are in need of aid? Here, I’m to anything that happens that makes you think you can’t make a payment. Do not miss the payment. Like, seriously guys, don’t. Missing a payment or being late can have dire consequences for your credit score.

So, what can you do instead? You need to contact the lender! The lender also doesn’t want you to miss a payment so generally will work with you to make sure you don’t. There are a few options. The first we will talk about is deferment. This is when you experience an extenuating circumstance that makes you unable to pay your student loan.

The lender will “defer” your payment for a period. For subsidized loans, accumulating interest can be waived or covered by the government. For unsubsidized student loans, you will accumulate that interest while not paying. Forbearance is the second option and it is for those who don’t have a valid reason to defer the loan. Instead, you are granted a period of forbearance where the loan will accrue interest, regardless of the type of loan.

Consolidating your Student Loan Debt

If you are still struggling with having multiple loans and keeping track of them and all the payments, well, it might be a good idea for you to look into consolidating your student loan debt. Consolidating debt is something that happens often with credit card debt. It means you take all your different little debts and put it together under one big loan.

This is a great idea to take the complications out of paying back your loans. If you have multiple loans, it is easier to end up missing one of the payments or being late. To avoid this, consolidation is an option. You end up with one loan (A Federal Direct Loan is a good option) and a fixed monthly payment. One issue with consolidating your student loan debt is that it will more than likely create a longer-term period (30 years!) which means you will definitely be paying way more in the long run.

Keep The Bigger Picture in Mind

Moral of the story (which you should have also learned in college), make sure you do your research. You need to know all of your loans, what kinds they are, how much you owe, what your payments are--all of the good stuff. Stay on top of your loans because a late or missed payment can hurt your credit score.

These payments are going to be with you for years so you need to build good habits now. However, you decide to tackle your student loan debt, keep on top of it. Remember, if your financial situation changes, you can change your repayment plans. If you are having an emergency, looking into forbearance or deferment. Know your options, make your plans, and stick to it! If you’d like to read more about mistakes to avoid with repaying student loan debt, read this article from eadvisors.com!