With the already-high cost of education continuing to rise, the vast majority of students have no choice but to take on debt in order to finance their educations. Student loans can leave graduates financially crippled for years if they are improperly managed. If you need to take out a loan to pay for your schooling, it’s vital that you have a repayment plan in place long before you start to pay back the money you borrowed.
Your student loan repayment strategy should go far beyond getting a job and making your scheduled payments. Given the amount of debt the average student has — which typically adds up to tens of thousands of dollars — it’s vital to consider all your options in order to manage your post-graduation finances and achieve overall financial health.
Here are a half-dozen student debt management strategies that you might consider:
- Consolidate multiple loans. Many students take out loans from multiple sources, including government student loan programs, lines of credit and student loans through banks and other financial institutions. Managing individual payments can be time-consuming, confusing and costly, so if you have more than one loan to repay, consolidation can simplify the process. With loan consolidation, you essentially get another loan, which is used to pay back all your various creditors. Then, you are responsible only to one creditor, which can save you a lot of money in interest, not to mention a great deal of time and a lot of hassles. [ed. note: please don't do it like I tried to with a payday loan - a representative from fridayfriday.com said that "we endorse sensible lending and that students need to understand that a payday loan is not a way to consolidate debt, not even in the short term."]
- Purchase appreciating assets. Most students don’t think about using their loans to make investments, but if you have the capability, you can really get ahead by using some of your student loan money to finance assets that are likely to appreciate in value over the duration of your education. The classic example of this approach is to use some of your student loan money to make a down payment on a house, and live in the house as you go to school. When you graduate, your house will likely have appreciated in value to a significant degree, and you can sell it at a profit and use the proceeds to pay back your loans. If you want to explore this option, you may have to enlist the help of your parents to come up with all the money you need, not to mention the income and credit rating necessary to secure a mortgage.
- Know your repayment options. There are four main types of repayment schedules: standard, graduated, extended and income-dependent. A standard schedule requires fixed payments over a specified period of time (typically 10 years). Graduated payments are lower at first, then move up as you secure higher levels of income. Extended repayment plans are like standard plans, except that they are spread over a greater period of time; this will result in more interest charges, but it will also decrease the amount of your month payments, making them more manageable. Income-dependent repayment plans base payment amounts on your income and typically come with longer amortization periods.
- Adjust your repayment schedule. In addition to knowing your repayment options, remember that you may qualify to change them if necessary. For example, you might move from a standard repayment schedule an income-dependent or extended one if you are having a hard time meeting your monthly obligations.
- Consider the military. If you join the military, either during college or after you graduate, you can also qualify for unique payment postponements, deferments or even debt forgiveness. You can learn more about special options available to military servicemen and women through the Federal Student Aid website.
- Look into deferment and forbearance. As an absolute last resort, you can defer your student loan payments or apply for forbearance status if you meet certain income and debt load criteria. However, you should only use these approaches if you have no other option. Interest will continue to accumulate while your loans are deferred; all a deferment does is buy you some time to get your financial house in order. Forbearance can have an adverse effect on your credit rating, which can significantly inhibit your financial future.
With post-graduation debt loads becoming a fact of life for more and more students, taking the time to create a plan will pay dividends down the road. If you properly manage your student loans, you can save a great deal of money in interest and protect your credit rating, enabling you to finance other essentials if you take care to live within your means. Above all, remember that your student loans are an investment in yourself and an investment in your future. The standard rule of thumb is that a college education translated into $1 million in lifetime earnings, so don’t let the rising costs of education prevent you from pursuing knowledge and building towards a better future.
This is a guest contribution from Bill Hazelton, CEO & Founder of CreditCardAssist.com, an industry leading credit card comparison site, providing tips, advice and information on balance transfers, zero interest promotional offers and the very best cash back rewards programs. You can subscribe to his RSS feed or find him here on Google+, Facebook and Twitter.