Stuck under a big pile of student loan debts? One thing is for sure, and that’s your not alone. According to Federal Reserve data, 37 million Americans have student loan debt. And 14% of outstanding borrowers have at least one past-due loan. And 86% of the people who took out federal student loans owe an average of $28,000.
What can you do if you all $28,000 or even more, here are seven tips that could help you tame that savage beast of student loan debt.
1. Begin saving during the grace period
If you have federal Perkins loans, you may not have to make any payments for nine months. The grace period on federal Stafford loans is six months. Private loans have grace periods that vary. This means you will need to check this with the company that services your loans. It’s also important to use your grace period wisely. Look at all the various repayment options and determine what you can really afford. There’s an online student loan calculator you could use to determine how your budget would be affected by different repayment plans. You should also start making imaginary student loan payments to your savings account. This will help create space in your budget for your loan payment. And it will help you build up an emergency fund.
2. Change to an income-driven repayment plan
The federal government offers five income-driven repayment plans. They represent a way to link your payments to your income so if your income stays flat, your payments stay relatively low. Of course, if your income increases, so will your payments. The best of the income-driven repayment plans are REPAYE (Revised Pay As You Earn) and PAYE (Pay As You Earn).
Both these plans cap your monthly payments at 10% of your discretionary income. For example, your net income could be $2000 but if your discretionary income was just $500 a month, your payments would be $50.
The only real difference between these two programs is that with REPAYE, your monthly payments are capped at a flat 10% of your discretionary income. With PAYE, your payments would be 10% of your discretionary income but no more than what they would be under the standard 10-year repayment plan.
3. Sign up AmeriCorps or get a public service job.
If you signed up to teach for a year in AmeriCorps, you learn about $5,645 toward your loans, Certain public service certain jobs exist where if your total debt when you graduate is less than your annual starting salary, you should be able to pay off your loans in roughly 10 years. These jobs include firefighter, public librarian, public university professor, public school teacher, and working for a non-profit organization.
4. Be smart about your payments
If you’re smart about your payments it’s possible to get your loans paid off quicker and save a lot of money. One way to do this is through your direct debt. This is where you have your monthly loan payments automatically paid out of your checking account. This ensures you’ll never be late with your payments and many lenders will give you a small interest rate deduction When you do this, the deduction is not huge – typically 0.25% Or 0.50% – but even small bits help. You should also do as much shopping as you can on the Sallie Mae site as this will earn you cash rewards towards your student loan debts. We know of one smart shopper that got $300 in rewards one year by using grocery coupons and booking travel through the Sallie Mae site. That’s the equivalent of one payment a year.
5. Be cautious about consolidating
You might be able to save money by consolidating on your federal student loan debts into a Direct Consolidation Loan. The interest rate on these loans is the average of the interest rate on your current federal student loans rounded up to the next ⅛ of a percent. Plus, you would have only one payment to make a month – in place of the multiple payments are currently making – which should make your financial life simpler.
An option would be to get a debt consolidation loan from a private lender. Even with the Fed’s coming interest rate bump, the interest rate on a private consolidation loan should still be very low.
However, student loan debt consolidation does have downside. Keeping your loans separate offers the opportunity pay down several small loans all at once, instead of having to make one large payment a month towards one big loan.
The objective of this information is of these tips is to help you avoid defaulting on your student loan debts. Defaulting on a student loan debt is a very bad thing. Even though it’s an unsecured debt, it can’t be discharged through bankruptcy. The government can and will garnish your disposable pay and without getting a court order. It can intercept your tax refunds and even take a cut out of your Social Security. You can run away from your student loan debts but you can’t hide. The federal government’s debt collectors will eventually find you. There is just no benefit to defaulting.