Working on paying off student loans? Here are three tips from a student loan advisor about how to keep that debt under control.
If you’re like the majority of college graduates, you’ve entered a tough job market with a record high number of student loans hanging over your head. You’re probably worried and working to take control of your debt, and yet the popular image seems to be of GenY as more interested in taking a selfie than checking out a bank statement.
Working as an advisor to student loan borrowers for the past seven years, I’ve spoken to a lot of students in your situation, and I want to dispel that negative image. I know how hard you’ve worked to come out of college ready — and willing! — to face your debt.
Here are three of the most common misconceptions of GenY and education debt, along with some tips on how to keep those challenging student loans under control: (Click here to tweet these misconceptions.)
1. You rack up loads of student loans without thinking about the consequences
With tuition costs much higher now than they’ve ever been, taking out loans has become a necessity for many. Sure, many students are in denial about how much they owe and put off paying off student loans for as long as they can. But plenty of current students want to grapple with their debt before they graduate, if possible.
The best-prepared among you are those who researched your options before attending your first class — looking for scholarships, transferring schools so you could complete half your education at a lower tuition. Some of you are even paying the interest on your loans while you’re in school to cut down on long-term costs.
Another strategy to reduce borrowing is working part-time while you’re in college. Many schools offer resources to help with job placement. If your school can get you into a good internship, take advantage of it — one of the biggest challenges facing students is the job market, and in many fields, work experience is much more important than your GPA.
Many schools also provide opportunities for on-campus employment, which not only pads out your work history, but also gives you some much-needed pocket money.
2. You’d rather spend money on anything but paying down debt
When you have the funds to do so, you make your payments.
And you’re not just making your payments — the Millennials I’ve spoken to are proud to be on top of their finances. You’re smart about it, too – many of you embrace automatic payments as an excellent way to ensure payments go through on time.
In addition to automatic payments, another way you can retire your debt faster when times are good is to overpay each month. Interest on your student loan builds up every day, but it’s only based on your current balance.
Every overpayment, even if you round up a little, is going to prevent interest and save money the long run. Just be aware of the opposite – every time you reduce or postpone payments, you’re agreeing to let more interest build up that you aren’t paying down.
Still, if you’re facing financially tough times and can’t afford your student loan, try another payment plan, like income-based repayment or graduated payments, to lower your monthly bill. Pursue alternatives like these before turning to a deferment or forbearance, which will allow you to temporarily postpone payments, but may leave you deeper in the hole because of accumulating interest.
There are usually limits to how much you can use these options, so save your deferment and forbearance time for true emergencies, like unemployment or medical crises. Don’t treat them like a simple “pause” button or you may find yourself out of options when bigger problems arise.
3. You’re all hoping for a student loan bailout
Most of you acknowledge your debt and feel a personal responsibility to repay. Some of you have even turned down loan discharge options for no reason other than personal responsibility.
You should remember, though, that while total forgiveness of all student loans isn’t a likely scenario, some amount of forgiveness can be a reality for many. You may have heard about options like Public Service Loan Forgiveness, but few realize you need to structure your payments properly to qualify for it.
If you’re working in a public service job, do the research right now to see how to qualify – so many people have worked for years in public service that ultimately won’t count toward forgiveness, because they didn’t just talk to someone about it and officially start the process first.
Ultimately, it’s clear you just want reasonable solutions that will let you manage the debt and still lead a normal life. You want to have the same opportunities as previous generations — and, of course, you would like our nation’s policymakers to pay attention to your needs.
Michael DeFillippi is a Senior Customer Care Specialist for SALT®, a nonprofit program that gives students money knowledge for college and beyond.