Unlike bad health and accidents, getting into trouble with college loan debt is avoidable.
Now that many college decisions for the coming year are set, it's time to take a hard look at loans.
You need to be aware of how much a loan is going to cost you down the road and try to find other means of financing a college education.
Community college is one answer. Taking some time off to save money is another.
But suppose you're looking at an appealing acceptance offer at a good college and can't afford it with the limited money you've saved.
Unless you're offered a generous scholarship, grant or tuition discount, you have to consider loans.
Yet when it comes to loans, far too many Americans get buried in debt repayments and fall behind. Some seven million graduates are defaulting on their college loans. And that rate is rising every day.
Other than fully projecting what a loan will cost -- how much will your monthly payments and interest be and how long will it take you to pay if off -- you can get ahead of future problems.
What you need is a successful repayment strategy that you put into place at the time you take out the loans. This involves some planning, but here are the main points:
- Know Your Options and Don't Procrastinate. Education loans have a variety of deferment and forbearance options that can help you if you truly need a break from payments, according to Navient, the student loan servicing company. By keeping these options to a minimum, you can reduce the cost of your loan and shorten repayment periods. Borrowers who use less than six months of forbearance are nearly twice as likely to successfully repay student loans than those who postpone longer.
- Know What You Owe. Borrowers who stay on top of their debt tend to be more successful in loan repayment. Regularly logging in to your online student loan account ensures you’re up-to-date on your balance, makes it easy to explore or renew payment plans, and get information for tax time or other needs. Also, keeping your contact information up to date ensures you and your servicer can reach each other easily.
- Graduate On Time. Graduation is the most important step toward realizing the value of your education, so, if you’re still in school, stay on track to completion. If you didn’t finish your degree, you can still take other steps to actively manage your finances and find the path to successful loan repayment. If college is still in your future, build a plan to pay for your degree so you’re sure to graduate. Staying in school longer means possibly taking on more debt.
- Avoid Default. The longer you are able to make payments on your student loans, the more likely you are to succeed. Continuing to pay something – even if it is a small percentage of income – is a factor in repayment success. Missing payments can damage your credit and lead to higher costs. Once you're in default on your loan, the debt collection agencies will come after you. Know what the repayment options are on federal loans. Student borrowers who reach out to their servicer when they have questions tend to be more successful in repayment. If you’re worried about missing your payments or want to learn about other payment plans, engage with your servicer, the company that handles your loan repayments.
If you take out federal loans, you have a number of options in repayment. You can choose payments based on income or have them increase as you make more money.
Private loans are much more difficult to negotiate since they are based on your credit score and don't have the same repayment flexibility as federal loans. They should be avoided.
Whatever path you take, try to get a reduction in overall college costs upfront. You can appeal any aid offer by stating specific details on your family's financial situation.
Did a breadwinner lose a job or face a reduction in salary? Is there a pending divorce or looming medical bills? Everything that relates to a change in your ability to pay for college should be sent to a college's financial aid office. They may offer fewer loans and more grants and tuition discounts. That's preferable to loading up on loans.
