How to Pay Off College Debt
The task of paying off college debt soon after graduating is not only tedious, but also extremely intimidating. It is one of the biggest challenges faced by fresh graduates and one that can lead to a life of debt if not dealt with properly. It is essential for you to pay off your college debt as soon as possible so that it does not hinder you from achieving your long term goals like buying a beautiful house or a fancy car. At the same time, you should keep in mind that that the longer you wait, the more interest you will accumulate on your loan, inevitably causing you to pay more.
What is the Average Debt of a College Graduate?
The average debt of college graduate is about $24,000. But not all debt is equal. Federal student loans, for example, are usually easier to pay off than private loans because they tend to come with lower interest rates, more favorable repayment programs, loan forgiveness opportunities and monthly payments that may be capped at a percentage of a graduate’s disposable income, ensuring their affordability. Private student loans, on the other hand, don’t necessarily come with the same guarantees.
Help With Student Loan Debt
Recent years have seen a significant increase in educational expenses for higher education. However, this does not mean that the number of students wanting to attend college is decreasing; in fact, if anything, this figure has been on the rise, which can be explained by the fact that most employers prefer to hire college graduates.
The promise of a better career has urged many individuals to purse a college education even though they do not have the necessary funds to do so, which is where student loans come in. These funds can help to pay the cost of attendance and various other expenses such as books and living expenses. The process of applying for these is fairly simple and almost all schools accept them as a legitimate form of funding. Notably, having both a co-signer and a good credit score will significantly improve the chances of obtaining a private loan.
The problem begins as students start making payments on these loans. There are plenty of students who acquire more than one loan to pay for their expenses but then struggle to keep track of multiple repayments. These students can save themselves trouble by looking for help with student loan debt.
The most important instrument available for students with multiple loans is consolidation, which combines all of the existing loans into a single new loan, which could have a fixed or variable interest rate depending on the choice of the borrower. Choosing a fixed rate of interest means that a student will be immune to interest rate fluctuations and consolidation can also lead to lower monthly payments, which can be huge relief for students who are facing monetary issues. This option, however, can have drawbacks, as lower payments mean paying more interest over a longer period of time. Any benefits or perks associated with individual loans before consolidation will be lost.
Apart from consolidation, there are other options that students can explore, including deferment and forbearance. No matter which option a student chooses, he/she should keep in mind that defaulting on a loan is never good and should therefore be avoided at all costs.
- Standard Payment. This option allows you to make monthly payments of your debt and interest within 10 years.
- Graduated Payment. This option is feasible for those students who are making a modest earning but expect their wages to increase over time. Payments for this option start off low but increase with time and are payable between 10 to 30 years.
- Income-based Payment. You can use this option if you want to make payments proportional to your income, allowing you a time frame of 15 years to pay off your debt completely.
- Long Term Payment. This option allows you to pay off your student loans (plus interest) within 30 years on the basis of a monthly payment.
- Loan Forgiveness Programs. This is an excellent option for those who are interested in pursuing a career in public service, since most public service careers provide students with the option to pay back loans in exchange for certain commitments such as enrolling in Peace Corps, AmeriCorps, or working as a teacher or in the Air Force. After all, there are a few ways by which you can defer your payment if you feel that you need more time to pay off your college debt.
- Consolidation. This option allows you to combine all your loans into one loan, which is then payable over a longer period of time but of course with increased interest payment.
- Deferment. If you feel that you need more time, then you can ask your creditors to give you some time off from payment, but it will not negate interest accumulation.
- Forbearance. This is similar to deferment as it allows you a grace period of usually three months, in which you will not be required to pay, provided you are able to show documentation of hardship.
How to Pay Off Student Loans Fast
When attempting to pay off your student loans, there are certain pitfalls to avoid. One of the first things to be aware of is your repayment schedule and monthly due date. Ideally, you should understand your repayment information before you sign the loan – things like what your minimum payment needs to be and how much you plan to pay a month are important to know up front so you can prepare yourself when the time comes to start paying the loan back.
You also need to keep track of your debt. Keep your student loan information in a safe place so you know not only how much you are borrowing but also where to send payments when the time comes. Try to only borrow what you need; don’t take the maximum amount offered if you don’t need it. It is easy to lose track of exactly how much money you are borrowing, especially since you reapply for aid each year, if you aren’t keeping close tabs on it.
Pay down your interest as soon as possible, and don’t let it stack up, particularly if you have an unsubsidized loan. Unsubsidized loans start accruing interest immediately and that interest will capitalize, adding onto your principal amount and increasing the total amount you owe. If you can pay more than the minimum amount or more than once a month, do it! It also doesn’t hurt to start paying as soon as you receive loan funding, as this can save you money long-term.
Be sure your loan servicer has your current address on file, as they will need to send you information on your loan periodically. By living below your means and keeping a cash budget (i.e., not racking up credit card debt also), you can work to get out of debt more quickly.
How to Manage College Graduate Debt?
Here are a few pointers that may help avoid as much debt as you can, or at least better manage any debt that’s unavoidable. Firstly, you must apply for federal student loans before considering private loans. This is because federal loans tend to have lower interest rates as compared to private loans. Also, federal loans may not accrue interest while you’re in school and come with more favorable repayment terms, like income-based repayment and opportunities for loan forgiveness. Another important tip is to understand the amount and type of your student loans. You need to find out how much your payments on each loan will be. You can also request the extended repayment plan if you’re having trouble with your monthly payments. This will lengthen your repayment period and decrease your monthly payment (although you’ll be paying over a longer period of time). If you have federal loans, you can also opt for an income-based repayment plan that limits the payment amount to a specific percentage of your discretionary earnings on a monthly basis.