We understand that you really do want to pay back those student loans. The problem is you never seem to have enough money to make those loan payments and yet have a decent lifestyle. You worked hard to get through college but you’ve learned one of the sad facts of life, which is that a starting salary is just that – the lowest salary you will probably ever earn. So what can you do in the meantime about those stupid, err, student loans?
#1. Understand your options
Whether you realize this or not when you graduated you was automatically put on what’s called 10-Year Standard Repayment. This is where you have a fixed interest rate and a fixed monthly payment for 10 years. If you are struggling to meet those fixed monthly payments the good news is that you have options. One of the best of these is called Graduated Repayment. This is where your payments start low and then gradually increase every two years. This repayment plan could be an excellent option if you believe that your income will also increase over the next 10 years. A second option, Extended Repayment, is just what the name suggests. It’s a way to extend the term of your loans to as long as 30 years. This would probably result in the lowest possible monthly payments but then do you still want to be paying on your student loans when you’re in your 50s? Finally, there are three Income-driven programs. If you were eligible for one of these, Pay As You Earn, your monthly payments would be capped at 10% of your discretionary income.
Here, courtesy of National Debt Relief, is a brief video that explains more about the repayment options available to those that have federal student loans …
#2. Remain organized
If you’re not careful the task of managing your student loans can become like trying to herd cats. You need to stay organized which means keeping track of your loan information. If you’re not sure of how much you owe and on which loans you should go to the National Student Loan Data System for Students (https://www.nslds.ed.gov/). Here is where you will find all the information regarding your federal student loans including the types of loans, when the funds were disbursed, how much you owe on each of your loans and your interest rates. This is the fundamental information you need in order to manage your student loans and make sure you keep current.
#3. Have a plan
Many experts say that when you’re first out of school you should try to limit your required payments as much as possible. This is because it’s equally important to have an emergency savings fund in the event the transmission falls out of your car or you have a medical emergency. You should definitely try to sock away enough money to cover at least three months of expenses. After you’ve done this, you could then consider increasing your loan payments though you will want to ensure that this doesn’t mean incurring penalties and that any extra payments you make will go towards your principal loan balance. You might also consider consolidating or refinancing your student loans and what it is you would need to do to qualify. As noted above, there are a number of different repayment programs for federal loans. You could make your payments more affordable with just a little planning. As an example of this when you’re collecting information to prove your income level be sure to provide the most accurate information as your situation may have changed radically since you filed your taxes.
#4. Automate your payments
We understand that repaying your student loans can seem less important than buying food or paying rent but it is critical that you stay current. Federal student loans are considered to be in default the day after you miss a payment. However, you won’t be in serious trouble until you haven’t made a payment for 270 days because this is when your loan may be turned over to a federal debt collector. Trust us when we say you don’t want this to happen. Once your loan goes to a debt collector you could see a portion of your wages garnished as well as a portion of your income tax refunds. You would lose your eligibility for any additional student loans and all those nice options such as Graduated Repayment would go away. A better solution than trying to remember to write a check every month is to automate your payments. This is where your loan servicer automatically deducts the money from your bank account every month. Of course, for this to work the money has to be there. Assuming that it is, you will then never miss a payment and won’t ever have to worry about going into default. If you check with your loan servicer you might even find that it offers discounts and incentives for you to enroll in automatic payments.
#5. Check out all available options
The good news is that there may be options available to you that you’re not even aware of that would help you pay down your loans. For example, there are employers that offer assistance with student loans as part of their benefits programs. Other companies might be willing to provide you with some help if you ask. Believe it or not you could also volunteer your way to a debt-free life. Plus, you could deduct up to $2500 of your student loan interest from your income tax if you fall within a certain income range. It might be tempting to use your tax refunds to pay for a trip to Mexico or the Caribbean but it would be far better to use them to pay down your student loan debts.
If you had to get private student loans to finance your education you were pretty much stuck until very recently. Private lenders such as Wells Fargo and Discover offered zero options. You had a fixed monthly payment, a fixed interest rate and a fixed term and that was it. However, as Bob Dylan has sung, “the times they are a changin.” For example, Wells Fargo is lowering its interest rates to as little as 1% in a program that is now available to all eligible borrowers that are up to or around 120 days and 130 days behind in their payments. This new program is also available to those who had been on time with her payments but are in risk of falling behind because of unemployment, pay cuts or medical issues. If you have defaulted on your loan or are 130 days or more late with your payments, you would not be eligible for this program.
Discover has started allowing some borrowers to make interest-only payments for temporary periods of time. It has said that it will roll out permanent modification options early next year, which could include interest-rate reductions and even partial loan forgiveness. Right now, the interest-only option is only available to those that are less than 60 days late on their payments and were not previously in a similar repayment option.
Don’t wait. Act now
If you’re struggling to repay a private loan or loans don’t wait for these companies to come to you. Contact Wells Fargo or Discover immediately – especially if you are possibly headed for default.