In the US, it’s not altogether uncommon to graduate from college with a debt of more than $100,000. The stats are actually a bit worrisome. There are about 37 million people in the country with student loans to pay, and the debt totals more than a trillion dollars. About 70% of the graduating class of 2012 had student loans to pay, and the average debt is close to $30,000.
If you have student loans, here are some tips to help you pay for them:
Take advantage of loan forgiveness programs
If you have federal student loans to pay off, you may not have to pay the full amount if you take advantage of programs like the Public Service Loan Forgiveness program. This program forgives all your loans after you work in certain nonprofit or public service jobs and you make 10 years of qualifying payments. There are other forgiveness options if you’re a teacher or a nurse, or if you volunteer for the Peace Corps or the AmeriCorps.
Don’t consolidate your federal loans with your private loans
While there’s an ongoing debate as to the actual usefulness of debt consolidation (which combines your loans into a single debt for a single monthly payment and a fixed average interest rate), everyone agrees that you need to keep your federal loans separate from your private loans. That’s because federal loans come with an assortment of privileges which you would lose through consolidation, such as loan forgiveness programs and unemployment deferments.
Try to lower your principal if you can
Debt payments first cover late fees, then the interest, and then finally the principal. If you can afford to pay more than what’s required, then do so. Reducing the principal lowers what you’ll be paying in interest. Just make sure that you submit a written request that your additional payment amount is applied towards the principal. If you don’t, then the extra amount may be used for future interest payments instead.
Prioritize your most expensive loans
If you’re trying to pay off a loan ahead of schedule, choose the loans with the highest interest rates. That almost always means you need to pay off your private loans first before your federal loans.
Communicate with lenders if you are having repayment troubles.
Payments can be suspended or reduced with federal loans. Sometimes even private lenders can accommodate your financial situation with reduced payments.
What you don’t want to happen is to default on your student loans. If you don’t pay for your federal loans for 9 months, the consequences can be horrendous. The total amount of your debt increases considerably, your credit score is trashed, and the government can then seize your tax refunds and garnish your wages. For private loans, the rules are even stricter and the co-signatory for your loan may get into trouble as well.
If you’re having trouble, the repayment schedule can be stretched out for lower monthly payments, and these payments may even be capped to 15% of your income. This can increase the total amount you have to pay for interest, but at least it saves you from defaulting.