Have you considered making a career out of becoming a professional student just to avoid that dreadful day when your student loans come back to haunt you? I must admit, that’s partly why I started my MBA program, and why I’ve even toyed with the idea of a second master’s degree. Although short lived, the thought was definitely there. I’ve never met anyone who’s excited to receive a letter or call from Sallie (Mae). That’s because she’s like that annoying friend that has her hand out every time she comes around. But hey, she was there when we needed her support to get through school. For many of us not only did she help with tuition and room & board, but also with those new sneakers or a pair of shoes and maybe even that spring break trip to Miami or Cancun. Those refund checks came in handy! Maybe not the smartest choice considering that we all knew we’d have to pay her back eventually, nevertheless what’s done is done. Now that eventually is here, time to face the music.
According to the Chronicle of Higher Education, 60% of all college attendees borrow annually to help cover their education costs. There are 37 million student loan borrowers that currently have outstanding loan balances. The results from a survey conducted by Fidelity indicated that the average college graduate’s debt was over $35,000 in 2013, and we can only expect that number to continue to increase over time. Per an American Student Loan study, “as of the first Quarter of 2012, the under 30 age group has the most borrowers at 14 million, followed by 10.6 million for the 30-39 group, 5.7 million in the 40-49 category, 4.6 million in the 50-59 age group and the over 60 category with the least number of borrowers at 2.2 million for an overall total of 37.1 million. “ That means that roughly 30% of us will still be paying on student loans when we’re practically 50. I personally did not have plans of allowing these loans to eat away at my pay check for so long. By 50, I’d rather be spending my money on my family, a mortgage, and traveling the world; but that’s just me. So I started to devise my plan to get ahead so I could enjoy more of my hard earned money later down the line.
What are Your Payment Options?
Student loan payments generally start to kick in 6 months after a student’s status drops below “half time.” This 6 month grace period is a onetime deal. So don’t expect another 6 months after having completed another degree. I learned that the hard way.
I completed my undergraduate program in May of 2010, so in November of that year I got my first bill. After picking myself up off of the floor, I took a minute to get over the initial shock and then decided to give AES (American Education Services) a call in hopes of working out a more reasonable expected payment. They weren’t as flexible as I had anticipated. They basically could only offer me three options.
1)Make the full payment- Definitely not what I wanted to hear. But the benefits were that the sooner that I started paying the sooner I could be done paying. Also starting to make regular and timely payments would help establish my then almost non-existent credit.
2)Select 2- Beware of this one. The way this works is that the borrower would only be expected to pay the interest on their loan for the next two years. After the two year period is up, the original principal+interest payment would increase considerably, to bring the loan current. So if your expected payment was originally $300, and the interest payment under select 2 was only $100, you might expect to pay $400+/month after the two years. The idea is that the new graduate would have time to find a job that might make the payments more manageable. This option is almost laughable, in my opinion. Paying interest without paying any principal is like giving away money just for fun. If you are to select this option, I highly recommend paying a few dollars over the interest amount to be applied to the principal. You do want to be mindful about how much in addition you are paying. As strange as it may seem, paying off your loan too early can result in a reduced credit score. Because student loans are considered installment loans, lenders like to see that you are able to manage credit over a length of time. They are less impressed by your ability to pay off the loan in a lump sum.
3)Going into Forbearance- Similar to deferment, the borrower can temporarily suspend their payments. This is usually a result of some form of financial or personal hardship. In this situation the loan continues to accrue interest during the forbearance period. The good news is that this has no negative impact on your credit.
If you’re less interested in paying off the loans yourself and would prefer government assistance there are several different option for certain professions. Educators and Social Workers are eligible for loan forgiveness. Generally, there is a minimum required time of service as well as other criteria, which are specific to each individual program. If you do not work in either of those fields, there are Public Service Programs where in exchange for your time and help in a community, a portion of your loans will be forgiven. I found this website to be very helpful in my search http://www.finaid.org/loans/forgiveness .
Take Aways
Ultimately, my intention was to make it clear that that there are options available for dealing with this debt. I also wanted to emphasize the importance of addressing the issue rather than ignoring it. I would advise recent graduates not to abuse the forbearance option but instead take advantage of the time they have fewer responsibilities and start paying early. Some sacrifice now will result in a much more enjoyable life later.
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