In the second quarter of 2011, student loan debt had ballooned to a whooping $550 billion. Furthermore, the Wall Street Journal reported in its Oct. 24, 2011 “In Debt? Here Come the Student-Loan Consultants” article that the debt is approaching $1 trillion.
Paying Off Student Loans on Time Yields Rewards
As if that’s not enough, penalties for defaulting on student loans are steep. To start, state and federal tax refunds can be intercepted. Student loans can be turned over to collection agencies. Your credit rating can also suffer. Furthermore, up to 15 percent of your wages can be garnished to repay the loans.
Clearly, paying off student loans on time has rewards. Whether you’re struggling to repay your loans or are seeking ways to pay off your loans early, the following tips can help.
- Career Counseling – Meet with your school’s career counseling office regularly. Attend career fairs, participate in internships and fellowships. Strive to have a job before you graduate so you’ll have income to repay your loans.
- Review Student Loans – Before you graduate, sit down with a loan counselor. Review principal and interest associated with your student loans. Also find out the amount of your monthly repayments. You can use loan calculators at Department of Education and FinAid to estimate your monthly repayments.
- Set a Repayment Deadline – Strive to repay student loans as quickly as possible. The longer you take to repay the loans, the more interest you’ll pay.
- Create a Budget – Add up your net income. Subtract your living expenses (e.g. rent, food) from your net income. Allocate a certain percentage (e.g. 20 percent) of your remaining income toward repaying student loans.
- Sign-up for Automatic Repayments – Some lenders may lower your interest if you set up automatic repayments. Check with your loan counselor to identify specific savings you can receive if you sign-up for automatic repayments.
- Consolidate Student Loans – Consolidate your federal and private student loans to lower interest rates.
- Apply for Loan Forgiveness – Contact the U.S. Department of Education if you plan to teach. You may get your Stafford student loan forgiven. To qualify for loan forgiveness you must agree to teach full time in low-income elementary and/or secondary school districts. The maximum loan forgiveness was $17,500 as of 2011.
Should you still find it difficult to repay your student loans, consider taking one or more of the following steps.
- Cap Monthly Repayments – Work with lenders to cap your monthly repayments at 10 percent of your discretionary income. Starting July 1, 2014, college students can lower the cap on their monthly repayments from 15 to 10 percent. This effort is part of the federal Income Based Repayment (IBR) plan.
- Contact a Student Loan Counselor – Establish a readjusted loan repayment plan. Also ask for a deferment if you’ve experienced significant life changes (e.g. layoff).
Avoid taking on new student loan debt until you repay undergraduate loans. After you start working, check with your employer to see if they offer tuition assistance programs (TAP). Through these programs you can get 80 percent or more of your tuition reimbursed.
Have you paid off your student loans?