Erase That Debt From College
By Joe Kenny
Youíve spent the last four-plus years with your nose to the academic grindstone. Graduation day is finally here; time to look back on what youíve accomplished through your college years, and look ahead to a successful career and a happy life.
If youíre like most college graduates, thereís something else awaiting your future, something not so pleasant. Remember those student loans that helped you survive through college? Now itís time to pay the piper. Studies show that two-thirds of students have significant student loan debt coming out of college. Ten percent of them owe $35,000 or more. Are you one of them? If so, donít panic. Stop, take a deep breath, and read on for tips on how to make repayment as painless as possible.
Rule #1óStick to the (payment) plan
Finally, those years of hard work are starting to pay off. Youíve landed a plum job making a nice salary, and you can finally afford those toys you dreamed about during those all-night cramming sessions. Then your first student loan bill comes in, and suddenly that new car seems just as much of a dream as it ever did. It sucks, we know. But youíve got to bite the bullet. Pay your student loan back early, and pay it back often.
By keeping on schedule, youíll save thousands of dollars in interest, avoid late fees, and save your credit. Also, most lenders offer a two percentage point interest break for payers who have made 48 straight timely payments. Reach for the streak. The easiest way to do it is to set up an automatic electronic transfer, wherein your monthly bill is taken straight from your bank account. If you go this route, many lenders will knock off another one-fourth point from your interest rate.
Also, unlike other loans, there is typically no penalty for early repayment of student loans. Each time you get a raise, put that extra dough into your student loan payment. Get that monkey off your back, youíll be happy you did.
Rule #2óGet a hand from Uncle Sam
Though interest rates of student loans are low compared to credit cards and other loans, itís still a frustrating reality to deal with. But there is hope, if youíre making under $65,000 on your own or less than $130,000 if filing jointly you can deduct up to $2,500 of the yearly interest youíre paying on your student loan.
Rule #3óGet Creative
If youíve crunched the numbers and youíre simply unable to come up with your monthly payment, there are options. Since your salary is only going to grow as you climb the corporate ladder, you can schedule graduated repayment plans with your lender. You start with a low monthly payment that will gradually get larger over the term of your loan.
Thereís also something called an income-contingent repayment plan. This is built for the self-employed or those who see regular fluctuations in income. The more you make, the more youíll pay back. Have a bad run? Your payments drop. For direct loan borrowers,
the Department of Education offers an income-contingent repayment plan that forgives any outstanding balance remaining after 25 years. The amount excused is, however, considered income and will be taxed as so.
Though these options do offer a bit of a reprieve on your checkbook, be careful. The longer it takes you to repay a loan, the more youíll be paying in interest.
Rule #4óTake a break
If youíre absolutely out of options, you might be able to temporarily suspend your payments. If you lose your job or go back to school for an advanced degree, you can request a deferment of your loan payments. If your request is granted and you have a Stafford loan, the government will actually take care of the interest that accrues during your deferment.
If you canít get a deferment, try a forbearance. You can suspend payments for up to a year, though youíll still be responsible for the built-up interest. Itís not the greatest deal, by any means, but itíll keep you from defaulting on your loan and getting a big fat black mark on your credit report.