Are you buried under student debt? Students regularly graduate from a four-year university with upwards of $30,000 in debt to Sallie Mae from their student loans. Private universities and technical schools often cost even more, and for those students that progress on into graduate school or focus on their doctoral degrees, the rates are even higher. As the joke goes, a student attends college to get a good job to pay off their college debt.
It’s a tough reality, for sure, but things might be changing soon. The Senate recently passed legislation that makes it less expensive for college students to borrow money. In July, a proposal passed by 81 votes that links interest rates on student loans to the financial market. With the economy in the shape it’s in now, that means interest rates will remain low until the economy improves. However, if we face an economic boom as so many hope, then student loan interest rates have the potential to double or even triple from what they are now.
For current students, this means immediate savings of up to $1,500. However, this could also mean more expenses for future students. The legislation is a double-edged sword, as no one knows what might happen. President Obama himself is quoted as saying, “The cost of college remains extraordinarily high. It’s out of reach for a lot of folks.”
So what if you already have loans and are struggling to pay them off? There are a few things you can do to make it easier.
The first thing is to focus on saving. It’s hard to put money away when you are struggling to pay for housing and keep the lights on, but that makes it more important than ever. If something catastrophic were to happen, then the cost of that would have to come from somewhere. To prevent yourself from being buried in late payments and even higher interest rates, it is important to not miss a payment on student loans. By setting aside money each month, even if it is just a small amount, you build up a safety net to handle unexpected expenses.
Another step you can take is to find out what of your debts is the most expensive. If you are facing debt from numerous sources like credit card payments, car loans, and student loans, it is likely the student loans are more lenient than others. The loans are designed to be paid off over time, and have much longer payment plans than other types of loans. Just because you feel you shouldn’t pay off student loans as quickly as possible doesn’t mean it is the smartest move. Find a payment plan that works for you that also allows you to pay off the higher, more expensive debts first. Once those payments are gone from your budget each month, you have more leeway to focus on student loans.
And the last, and perhaps most important step, is to face the numbers. When you see the number of zeros attached to your student loans, it can cause panic and despair, but you have to stay positive. Realize what you see is reality, and that it is a high amount, but also realize that it isn’t impossible. Sit down and budget your entire income, and make sure your loans are either less than ten percent of your monthly income, or somewhere between ten and twenty percent. This range makes it far easier to pay them off and maybe add a bit extra on top each month, and it also makes sure you don’t miss a payment and get hit with higher interest rates than before. If the payments exceed this range, get in touch with the loan company and negotiate a deal. Yes, you own them money – but they were students once, too, and are usually willing to work with you to figure out a payment plan that’s realistic and manageable.