Manage Student Loans

8 min read

Create a plan

Make a list of what you need to do before beginning college

Research online how to manage student loans

Write down everything you have learned about managing student loan debt

Find out what options are available for paying off student loans

Explore payment plans offered by different companies

Talk to financial aid staff about finding a repayment plan that best fits your situation

Discuss your options with your parents

Pay attention to interest rates

Look at the APR (Annual Percentage Rate) of your loan(s)

Compare this rate to the current market average

Consider any extra costs for having a variable vs fixed rate

Choose a company

Shop around until you find a lender who offers competitive terms & conditions

Manage Student Loans

Student Loan Debt

You’ve heard about the national average student loan debt hitting $31,000? Well, that number may surprise you. In fact, in some states, students have more than a million dollars in loans. It’s no wonder schools are getting nervous about graduates’ ability to pay back their loans!

Luckily, many options exist to help manage student debt. The first step is to determine how much is owed. Next, you’ll want to consider whether private lenders offer programs to help.

There are different types of private lender programs: forbearances, income-based repayment plans, and consolidation. Let’s take a look at each option and see which might work best for you.

Forbearance

A forbearance gives a borrower permission to stop making payments on certain debts (i.e., federal education loans) for a specified period of time. A forbearance can be granted if your financial situation changes significantly enough to warrant it.

In order to qualify for a forbearance, you need to show proof of financial hardship. For example, your monthly payment could exceed 30% of your discretionary income. Other examples include losing your job, having a child, or being diagnosed with a medical condition. If you meet the requirements, your lender may extend forgiveness until you’re able to make up the missed payments.

Some lenders don’t allow borrowers to use forbearance while working off their loans through public service jobs. However, they generally agree to grant a deferment for military service.

When you ask your lender if you qualify for a forbearance program, remember to bring documentation showing proof of financial hardship.

Income Based Repayment Plans

A second type of private lender program is called income-based repayment plan. Instead of paying interest and using up all of your income, these plans lower your monthly payment based on what percentage of your total income you pay toward your loans.

Because these plans take just a few years (rather than decades), they often require fewer payments over that period. There are three basic plans:

10th Payment Plan. Under this plan, your monthly payment would be the same as your regular payment, plus 1% of your discretionary income per month.

15th Payment Plan. Also known as the extended payment plan, this plan would give you a slightly higher monthly payment than your current plan, plus 2% of your discretionary income each year.

Manage Student Loans

Student Loans

Student loans can vary significantly depending on where you go to school. If you attend a public university, then you’ll generally pay less than if you attend private schools. However, even attending a private school can result in student loan debt. These debts often have high interest rates, meaning they can add up pretty fast. In addition, the loans may not actually help you financially at all. Many students don’t realize that their financial aid isn’t going towards education-related expenses. Rather, it’s being borrowed against what they earn while they’re in college. This means that, after graduation, it comes out of your paycheck. So, although you might get $10,000 in federal grants and need only repay $8,000 of that amount, what you end up paying back will probably be quite higher. You should try to keep track of these costs on a monthly basis. That way, you’ll know how much money you owe, and whether it makes sense to borrow any more.

Repayment Plans

Generally speaking, student loans aren’t paid off until you’ve worked for 30 years. And, as noted above, many people who graduate end up earning enough to pay back their entire loan balance immediately upon graduating. But, some people find themselves unable to work right away because of injuries, unemployment or family obligations. In those situations, you might qualify for a repayment plan. Before signing anything, make sure that you read the fine print carefully. The best plans allow you to gradually pay down your debt over time, reducing interest rates. Others offer lower payments now and increase them later. Still others are based on income, so they adjust automatically based on your earnings.

Loan Consolidation

If you do end up having trouble repaying your loans each month, you might consider consolidating them. That is, making one payment instead of several smaller ones. You can do this either through refinancing or consolidation. Refinancing involves getting a new loan to replace your old one. You’ll still have to pay the same monthly payment, but you’ll save money on interest charges. Consolidation involves taking all of your student loans from one lender and combining them into one single loan. Doing this lowers the total amount you owe and limits your rate of interest. While there are pros and cons to both approaches, it’s important to weigh them before deciding.

Income Based Repayments (IBR)

Many student loans offer IBR options. Under these programs, your payments are tied to your income. For example, if you earn between $50,000 and $75,000 per year, you won’t pay anything while working full time; however, once you start pulling in more than $75,000 annually, your payments will begin. If you were offered an IBR option when you signed up for your loans, it’s likely that you could eliminate your monthly payments altogether. Of course, if you decide to take advantage of that option, you’ll want to monitor your finances closely. There will be a penalty if you fail to meet certain requirements, including missing two consecutive payments. If that happens, you’ll be charged late fees, and your interest rate will jump dramatically.

Payday Advances

Payday advances are short term loans that run until your next payday. These can help tide you over if you’re experiencing financial difficulty, but they do carry some risks. First, you’ll find yourself charged a hefty fee for using the service. Second, you’ll most likely be pressured into accepting a higher APR than you otherwise would. Finally, you’ll end up owing a lot more money than you anticipated. And, unless you use the money to cover emergency expenses, you won’t be able to avoid the added cost of borrowing.

Credit Cards

Like payday advances, credit cards can become a problem if you abuse them. After all, credit card companies charge interest on outstanding balances, and you can rack up huge bills pretty quickly. Even worse, if you max out your line of credit, you risk losing access to funds when you reach your limit. The good news is that credit card companies are willing to let you rework your payment schedule. They’ll give you grace periods to catch up on missed payments. Once you’ve caught up, though, you’ll almost certainly have to sign up for a different type of credit card.

Mortgage Payments

Mortgage payments are typically taken care of by your employer, and you shouldn’t see them directly on your tax return. This is true regardless of whether you own or rent. Nonetheless, if you want to minimize mortgage deductions, you’ll want to consider closing the gap between your mortgage payment and the amount you pay in property taxes. Unfortunately, this will require you to seek outside financing. And, since lenders tend to prefer borrowers with strong credit scores, you may find it tough to secure a loan.

Manage Student Loans

How do I get started?

There are many ways to start managing student loans. Here are some options:

Check out your local financial aid office for information about programs offered by your school. A lot of schools offer assistance in paying off student loans while still enrolled at their institution. (Check your catalog.)

If none of these options work for you, visit www.StudentAid.org/Start. This site provides links to dozens of free tools that can help you manage your debt. You may also want to check out CredentialOne, a service provided by Sallie Mae to help students manage their federal education loans. Visit www.credentialone.com/studentloans/index.jsp to learn more.

Try to keep track of how much money you spend going towards your loan payments each month. That way, if you don’t have enough money left over to pay for something else, you’ll know what bills to cut first.

Ask your parents, grandparents, friends, coworkers, etc., for help. Chances are good they’ve had this experience before and might be willing to lend a hand.

Seek professional advice. Call your lender and ask them to explain what options are available to you. Your lender may even provide guidance if you’re having trouble making ends meet.

What are my payment options?

Generally speaking, you have two major options for paying back your student loans:

Paying as agreed by your original promissory note or agreement between you and your lender.

Making payments outside of the terms set forth by your promissory note or loan agreement, known as prepayment.

Payment as Agreed by Original Promissory Note or Agreement Between You and Lender

In general, if your loan was originated no later than 1990 and your repayment period does not exceed 25 years, you should expect to make payments directly to the lending bank according to the terms set forth in the promissory note or other document signed between you and the lender. To find out whether your school has any special arrangements in place for their own loans, contact your academic dean’s office.

Prepayment

Manage Student Loans

What is student loan debt?

Student loans are not loans. When people borrow money from banks, they have to pay interest each year over a period of time. When someone takes out a loan to finance their education, they do not incur any interest costs. In fact, they only pay back what they borrowed at the end of their studies.

How does student loan debt affect borrowers?

For most students, student loan debt isn’t much different than having credit card debt. But, in addition to making payments, borrowers often face additional fees and penalties if they miss payments. In some cases, borrowers may even lose access to federal financial aid programs if they don’t make timely repayment.

Can student loans be discharged in bankruptcy?

Yes, if you file Chapter 13 personal bankruptcy. However, many lenders won’t agree to discharging student loans in bankruptcy, so it’s best to settle debts outside of bankruptcy. If you decide to go through bankruptcy, talk to your attorney before filing about whether your lender will agree to discharge the loan.

Is the government responsible for student loan debt?

No. Students take out private student loans instead of getting them from the federal Department of Education. Private lenders can forgive your student loans just like a bank forgives a credit card payment.

Do I need to worry about my student loan debt?

If you’re struggling to make monthly payments on your student loans, it might benefit you to explore options to consolidate your debt into a single loan. However, if you want to declare bankruptcy, it might not help you get rid of your student loans.

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