Ways to Address Student Loan Debt

Accessing the loans you need to afford a college education may be easy, but paying them back can be a challenge. This is particularly true in today’s sluggish job market where approximately 9% of Americans are unemployed. And while job prospects for college graduates are still better than those with lower education, will the accompanying salaries be enough to live on while you’re repaying big student loans? 

The reality is that students don’t often think about these facts when they first apply for financial aid. Then, as four years of college quickly zip by, loan amounts still aren’t likely front and center in their minds because they’re consumed with analyzing works of literature, debating political climates during major wars, extracting enzymes from plants, and, oh yeah, trying to find a job. 

But about six months after students receive their diplomas, it’s time to start repaying those loans. And we’re talking about a sizable amount of money. Students who graduated from public and private nonprofit four-year colleges have an average of $24,000 in student loan debt, and many students have double or triple that amount. Another troubling fact is that two out of five student loan borrowers are delinquent at some point in the first five years after entering repayment, meaning they’ve missed a payment. 

The implication of these numbers is that recent graduates may have to delay major life events, like buying a car, buying a home, or starting a family, while they chip away at their debt. They may also be forced to accept a job they don’t want or work two jobs to help make ends meet. 

So as you think about your own mounting student loans, here are some steps to help you determine the best way to repay them. 

First, calculate the total amount of your loans and determine who you need to pay. Get help with this math using The National Student Loan Data System (NSLDS), a central database you can use online to identify your student loans. Maintained by the U.S. Department of Education, the system consolidates information it receives from schools, guaranty agencies, and Education Department programs including Direct Loans. 

Next, make sure you speak the “language” of financial aid because there may be terms associated with your loan(s) that you don’t understand. Check out the NSLDS online glossary to boost your financial literacy. 

What if I Can’t Afford My Payments?

Once you understand your loan amount and know who you need to pay, what should you do if you can’t afford the full monthly payment(s)? Unfortunately, one solution doesn’t fit all. Rather, the answer depends on your individual situation (e.g., how much you owe, how much you can afford to pay, etc.). Here are some options to discuss with your lender(s): 

• Income-Based Repayment: Students who originate federal loans beginning in 2014 can sign up for an "income-based repayment" plan that limits how much they have to repay following graduation. Annual amounts due will be capped at 10% of the graduate’s income, replacing the existing 15% cap. This change is welcoming news to graduates who earn low salaries.
   
• Postponed Repayment: According to a March 2011 study released by the Institute for Higher Education Policy, 23% of student loan holders postponed repayment by using deferment or forbearance to avoid delinquency:
   
• Deferment: Deferment is a temporary way to avoid making student loan payments for a specific period of time. Your loan is basically frozen in time – interest and all. To qualify, however, you must meet certain conditions (e.g., you suffer from economic hardship or unemployment, are deployed in the military, teach for AmeriCorps, join the Peace Corps, or become a full-time teacher in a low-income area). Eligible federal loans include Stafford, Parent PLUS, Graduate PLUS and federal consolidation loans. You might also be able to defer on private loans.
   
• Forbearance: Another way to postpone repayment is forbearance, which is similar to deferment but is generally more expensive because interest continues to build while you’re not making any payments.
   
• Loan Consolidation: Once you’ve exhausted the above options, you may want to consider loan consolidation, which conveniently groups your multiple student loans together so that you make only one payment, on one due date, to a lender that subsequently distributes funds from that payment to your individual loan holders. This means you don’t have to track multiple payment amounts or due dates. You might even be able to access a lower interest rate if you’ve improved your credit score since your loan origination date. Consolidation also stretches out your repayment terms, which can help you avoid default by lowering your monthly payment to an amount you can afford. Note that this modification plan will increase your overall loan amount, however, because of the additional interest you’ll pay over the extended life of that loan. Also, thoroughly investigate any lender you’re considering, and make sure you understand the terms of your new loan. Request the loan terms in writing and read them carefully. 

Whichever option you choose, the sooner you take action to address your current inability to pay, the better. Contact your lender(s) to determine if you are eligible for any of the programs they offer. In the meantime, set some achievable goals, live on a budget, and try to repay your loans as quickly as you can. With one of the above plans in place, you can start enjoying your adult life and benefit from your well-earned college education without wrecking your credit.

If you liked this you may also like:

• Is Consolidating Student Loans Right for You?

  Having trouble managing multiple student loans or paying the amount due? Perhaps student loan consolidation could help.

• Student Loan Forgiveness Act Aims to Eliminate Some of Your Debt

  If you’re like many other Americans, you racked up some debt in order to afford your college education. Actually, you racked up a lot of it. According to a recent article in the U.S. News & World Report, total outstanding student loan debt in the United States surpassed total credit card debt in 2010. Perhaps even more shocking is that outstanding student loan debt is expected to exceed $1 trillion this year. That’s a lot of zeroes!

• Do You Need Debt Relief?

  Feeling overwhelmed by your debts? Having trouble making ends meet? Unable to get ahead of your credit card debts? A Debt Relief plan may be your solution to getting control of your finances.

• Debt Relief: Myth & Reality

  Debt relief comes in many forms- credit counseling, debt consolidation loans, settlement and even bankruptcy. Each solution will help you get out of debt, but the long term impacts and fees can vary greatly. Understand the myth and reality behind your debt relief options.

• You Asked, We Answered: The Truth About Debt Consolidation Companies

  Regardless of whether you binge on shopping or simply use credit cards to make ends meet, there may come a time when you need a financial intervention to help organize your bills, repay your debt, and improve your finances. For some, debt consolidation is the answer. But before you jump in head first, it's time for a course in Debt Consolidation 101.

Begin our online process to see your personalized savings.

Start Now

Back Print