By: Preston Mangus
It’s hard to believe that with the simple right-to-left switch of your mortarboard tassel, you have left the comfortable confines of being a student and entered … the real world!
You are now a college or trade school graduate—and likely among the 68% of your fellow grads who, according to The Institute for College Access & Success, are leaving school with significant student loan debt. The pathways to repaying student loans are almost as confusing as obtaining them; but information and options abound. Let’s explore some ways to pay off this student loan debt.
Visit the National Student Loan Data System (NSLDS), which is the Department of Education’s (ED) central database for student aid. All of your current loan data should be on file here. Determine the loan types, amounts and interest rates applicable, and identify your loan servicer. Take advantage of the after-graduation grace period (typically six months) to develop a repayment plan. If possible, consider at least paying any interest you are responsible for on your loans before it is added to the principal balance. Remember: The sooner you begin repayment, the less your overall expense will be.
This allows the combination of one or more federal student loans into one new loan. You would make only one monthly payment, and you can typically extend the repayment term. This may increase the overall cost, so carefully examine your options and obligations. Your loan servicer should have a consolidation calculator to aid in this decision-making process.
If you are not able to begin repayment, there are some options available to postpone your payments:
Both are temporary measures, however, and they may increase your overall costs.
There are several different kinds of repayment strategies, including fastest payoff, income-driven payments, lowest monthly payment, and lowest cost over life of loan. All of these options will have different consequences. Whichever method you choose, make sure that you will be able to live with it and avoid default. According to the Federal Student Aid website, default occurs when you fail to make payments for 270 days. If that happens, you will lose most repayment options otherwise available, so always keep your loan current.
Loan repayment estimators, like the one available on StudentLoans.gov, can help you evaluate the best option for your situation. Most loan servicers will also provide these. Repayment options include standard, graduated, pay as you earn, revised pay as you earn, income-based, and income-contingent repayment plans. Make sure you understand how these plans work; some will require family status and income qualification and verification on an ongoing basis. Repayment options can be confusing, with many rules and conditions. The goal of these calculators is to help you get to a long-term repayment plan. In some cases, you can owe $0 per month based on the situation. Make sure you understand the details, and be certain to document all of your interactions with the loan servicer.
Loan forgiveness is not impossible, but it’s not really probable either. Only a very small percentage of loans will qualify. Refer to the Public Service Loan Forgiveness (PSLF) program for additional information and requirements.
It may be in your best interest to explore a private refinancing of the debt going forward. There are many pros and cons to consider. Most importantly, make sure your interest rate situation will be significantly improved. This may be difficult depending on the types of loans you have. There are many benefits to sticking with the federal program, so be sure you have looked at all of the potential pitfalls of a re-fi before you agree to one.
Also, beware of the many scams that target those who are looking into refinancing:
Many think that money owed for student debt may someday be politically forgiven somehow. Who knows if that will ever happen? What certainly will happen is that all unpaid debt will continue to grow larger. It’s always smart to hope for the best and plan for the worst. Don’t let student debt cripple your credit profile; use all the tools available to you, but always try to pay down the debt as soon as conditions permit. Recently, lenders have realized the hardship that student loans have created for many and they are trying to provide new tools to help. For example, Fannie Mae recently introduced their new solutions that help home buyers pay down debt during the mortgage lending process.
If you need help reviewing your situation and planning a strategy to responsibly retire your debt, please contact a VyStar Member Services Representative by phone, via email or in person at your local branch. The Consumer Financial Protection Bureau and Sallie Mae also offer helpful information on student loan repayment. With a little bit of help and research, you can worry less about debt and start enjoying the many benefits of your great education.
The content provided in this blog consists of the opinions and ideas of the author alone and should be used for informational purposes only. VyStar Credit Union disclaims any liability for decisions you make based on the information provided.