Managing Your Student Debt

Your college education enriched your life, created lasting friendships and perhaps opened the door to a job you enjoy. It also left debt in its wake.

If this sounds like you, you’re not alone. These days, approximately 71% of students graduate with student loan debt.1

Not to worry. In the same way that you put together a plan to secure your college financing, you can craft a way to pay it off. Here are some ideas.

Get organized
It’s not unusual to have multiple loans and loan servicers. Do you know who you owe, how much and when? To verify, visit the U.S. Department of Education’s National Student Loan Database at www.nslds.ed.gov. Here, you can find your guaranteed loans (either direct loans from the government or private loans made before June 2010). Not sure who your private lenders are? Pull a free credit report at www.annualcreditreport.com to find your creditors. (You’re entitled to a free credit report each year, and it’s a good idea to take advantage of it.)

Get in touch
Once you know who you owe, log into each account. Make sure they have your current information. This is important to ensure your bills don’t get lost if you move or something has changed. Also, be sure to get in touch with your loan servicers if you’re having trouble making a payment.

Set a goal to pay your loans off quickly
Student loan debt seems like it will last a lifetime. But if you set an aggressive goal to pay it off, such as three to five years, it can help you to focus. It will require that you pay diligently, curtail spending and miss out on some fun and impulse buys. But the payoff is huge. The more you pay into the principal, the less you pay in interest. You can shave years and thousands off of your debt. A few years passes quickly (your college years did, didn’t they?). College life likely taught you how to enjoy living on a shoestring. Leverage that knowledge!

Create an automatic savings just for your student loans
If you set up a savings account with auto deposit just for your student loans, money can be set aside each month so that you won’t even notice. Even a nominal amount adds up. Periodically, turn to the account to pay down your loan.

Consider an income-driven repayment plan
The federal government has four repayment plans for federal student loans. They’re based on income and can reduce your monthly payment. If you qualify, your payment will be capped to 10%, 15% or 20% of your discretionary income. These plans also stretch repayment to 20 to 25 years and can forgive any remaining debt at that point. Just be aware that stretching out your repayment schedule means you will be paying interest for more years.

The four plans are:Revised Pay As You Earn Plan (REPAYE Plan)

  • Pay As You Earn Plan (PAYE Plan)
  • Income-Based Repayment Plan (IBR Plan)
  • Income-Contingent Repayment Plan (ICR Plan)

To learn more or to apply, visit https://studentaid.ed.gov/sa/repay-loans/understand/plans/income-driven

Research Public Service Loan Forgiveness (PSLF)
Many people working in public service qualify for PSLF. This program forgives student loan debt after the borrower makes 120 on-time payments while working full-time for a qualified employer. Qualified employers include government entities, municipalities, school districts, non-profit organizations, public hospitals and more. You can learn more here: https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service

Contact your private lenders
Some private lenders offer different relief scenarios. These include modifying your loan, reducing your interest rate and postponing your payments temporarily.

Consider loan consolidation
The federal government offers loan consolidation, which enables you to roll multiple federal student loans into one. Doing so creates a single monthly payment, which can simplify your repayment. It can also lower your payment by stretching the repayment schedule up to 30 years. Despite the pros, there can be drawbacks. Extending your repayment schedule means paying interest longer. You might also lose your original loan’s benefits. These can include interest rate discounts, loan cancellation benefits, principal rebates and more. To learn more, visit https://studentaid.ed.gov/sa/repay-loans/consolidation

Watch out for scams
Student loans are big business, which has created scammers and companies trying to profit from borrowers. Most advertise loan forgiveness, debt settlement, lower payments and debt consolidation. They typically charge a high up-front fee and monthly payments.

Some companies take the money and do nothing. Others might do the very thing you can do for free. Some create websites that look like they are government-sponsored. There are also “law firm” scams where someone will claim they can settle your debt for thousands less than you owe.

Law enforcement and the Consumer Financial Protection Bureau (CFCB) are working to crack down on predatory companies promising student loan debt relief. The CFCB warns to watch out for anyone:

  • Requiring high up-front fees
  • Requesting your Federal Student Aid PIN
  • Promising to negotiate a “special deal” under the federal student loan programs

The federal government does not charge for loan consolidation. So if a company wants to charge you for this, you shouldn’t do business with them.

Keep your education going…to pay off your loans!
Your college education represents a major milestone in your lifelong education. Paying off your student loans represents another. Talk to your lenders, research government programs (on official government sites) and learn to manage your money in a way to achieve your debt-free goal. The investment you make will reward you for life!

1. “Congratulations, Class of 2015. You’re the Most Indebted Ever (For Now),” The Wall Street Journal, http://blogs.wsj.com/economics/2015/05/08/congratulations-class-of-2015-youre-the-most-indebted-ever-for-now/