Student loan debt is a crisis in the United States. According to the St. Louis Fed, at the beginning of 2021, education bills were in arrears of $ 1.7 trillion. According to data analyzed by NerdWallet, nearly 50 million people are affected by this.
“(Debt) has become an inevitable type of reality in higher education,” said Kelly Ann Smith, a consumer finance reporter for Forbes Advisor. Money problems – like having a loan of more than $ 10,000 hanging over your head – can feel truly isolated. But you are not alone. Here’s what you need to know to deal with your debt.
1. Think carefully about your plan.
If you are embarking on a new degree and need to take out a loan, think in advance about which type of loan is right for you. Do your homework and don’t be afraid to call and ask for help.
“When you go to school or look at schools and cost comparison, you have to keep in mind that … this is a financial commitment that you are going to make over the next 10 or maybe 15 or 20 years, ”explained Smith.
Having so many options to choose from can seem overwhelming. The Federal Student Aid Bureau has resources to help you sort out the different types of loans and what works best for you and your family. If you are considering a private rather than a federal loan, make sure you double check the rules – they can vary greatly from lender to lender.
It is also wise to consider your future career when calculating numbers. For example, if you want to pursue a less highly paid profession, think about your real income after graduation and how much you will need to pay back on loans.
2. Know the terms of your loan.
There are so many different loans out there and you need to read the fine print to avoid getting burned. It can be scary to even accept a full number, but you need to know what you are dealing with. in terms of interest and what your payments cover.
Melissa Jean-Baptiste, Co-Founder Millennials in debt, didn’t quite understand that her student loan payments only covered her interest, not the principal or principal balance. “I was very, very shocked to learn that I actually only had an interest payment plan,” she told NBC News, “and the $ 50,000 I borrowed even though I paid more than $ 18,000 for .. . three years, my balance has grown to about $ 80,000. “
If you are confused, call your lender. They can help you understand your plan and make the necessary changes.
3. Plan your payments in the game.
Paying back tens of thousands of dollars in loans is no easy task. Having a plan to pay on time is essential and some students may even start amortization while they are still hitting the books. Many loans offer a grace period of interest while you are in school and for several months after graduation, but there is no reason to delay if you can afford even small payments, says Jean-Baptiste.
Another way to cover your payments while you’re on a tight budget: increase your income… As a teacher, Jean-Baptiste was able to turn the work she was already doing into cash. “I started selling my lesson plans and my individual plans,” she explained, “to get some extra income.”
Grace Jean-Baptiste used redemption funds to structure lump sums. She knew that if she planned to pay $ 12,000 by the end of the year, “then I need to figure out how to save a thousand dollars a month from January to December,” she said. “This is really what helped me stay on course.”
4. Think Twice Before Refinancing
Interest rates are at an all-time low right now, so it might seem tempting to refinance for a lower interest rate. Smith warns borrowers against refinancing, especially when it comes to federal loans.
When you refinance, you are essentially taking out a new loan and “you no longer have a lot of safeguards or options that come with them, for example, at any time you can go to an income based, deferred or deferred repayment plan Smith explained. If “you have a really stable financial position with a really good job, in some cases you should refinance, but in most cases the standard advice is not to refinance federal student loans.”
5. Find a balance
Interest can seem really daunting and you may feel the need to pay off as many loans as possible to avoid accruing them. When it comes to aggressive repayment strategies, “there is a big difference between rushing to repay the loan and overstretching financially,” Smith said. “Be smart about how much you pay each month and still (be) able to do other things, such as accumulate your emergency fund or to have the money to go out and enjoy life … people need to find a healthy balance between them. “
Paying off loans is an amazing achievement and requires a lot of work. So many people are in the same boat. Be careful with yourself when you figure it out and you will get there in time.