Managing Your Student Loan Debt - Fluent & Ricciardi

All too often anyone you talk to who has student loan debt will tell you the same thing: they feel that they are making little to no progress in paying this debt off.

And it’s understandable. It’s easy to feel like you’re spinning your wheels when dealing with the same debt over and over again every month. There are many who are living paycheck to paycheck, barely able to make ends meet, having to give up “a life” for the sake of scratching out enough to make a debt payment. It can be pretty demoralizing when making a meager student loan payment makes a next to nothing impact on the outstanding balance. It’s a sad story to tell when you take into consideration the fact that being saddled with drowning student loan debt was the price to pay to get an education in the hope of having a prosperous and productive future.

The purpose of this article is to shed some light on things you can do or take advantage of that will help accelerate your debt payoff or lower the amount of your monthly payments.

Student Loan Refinancing: Typically, the interest rate that student loans carry is at the high end of the interest rate spectrum. Refinancing alternatives are geared toward replacing high interest student loan debt with rates that are much closer to current market rates. Over the long term this alternative can have a significant impact on how quickly your student loan can be paid off.

Student Loan Consolidation: As noted by StudentAid.gov, consolidation can simplify loan repayment by combining multiple loans into one bill and can lower monthly payments by giving you up to 30 years to repay your loans. You might also have access to alternative repayment plans you would not have had before, and you’ll be able to switch your variable interest rate loans to a fixed interest rate. However, there are some potential downsides to consolidation that need to be taken into consideration, as explained in this quote from HowStuffWorks:

You lose any grace period built into a loan structure if you consolidate too early. Let’s say you decide to lump all your loans together the month after leaving college. The interest rate drops a tiny bit, but before your resume even reaches prospective employers, you have to begin paying your loans. Remember, consolidation resets the loan clock — sometimes for the better and sometimes for the worse.
Certain loans have interest benefits within a tax structure. When you consolidate a loan, you might lose those benefits, as well as the grace period, if consolidation occurs early. This means you have to do your homework and read the terms and conditions of the loans that will be consolidated. The terms will explain if there are any special benefits that might be lost if you consolidate the loan.
You may adversely affect your extended repayment options.
You can only consolidate student loans a limited number of times — usually only once.

Alternate Repayment Plans: Under the Obama Student Loan Forgiveness Program, there are five variations of non-standard repayment plans available that are geared toward making repayment of the student loan more affordable for the borrower. They are as follows. See more at this article at LifeHacker.com:

Private Student Lending: As noted by Forbes, a financing alternative typically reserved for the graduate level student is something called Private Student Lending. Private student lending is financing for graduate school made available through private banks and lending institutions. One of the major advantages of the private lending approach over public lending alternatives is that interest rates available through the private lending system can be dramatically less than what equivalent Federal loans carry. One of the major drawbacks of private student lending however is that there are fewer repayment options to choose from (less flexibility) than through the public federal lending system. In addition, many private loans have variable rates, which means your interest rate could go up and down with the market.

Home Equity Line Of Credit: The typical scenario with a Home Equity Line Of Credit alternative involves a homeowner parent seeking to assist child student with paying for the student’s education. With this type of arrangement the parent takes out a line of credit with a lending institution that can be drawn against at any time to pay for the child’s education expenses. With most lines of credit, payments are discretionary with interest accruing on the line of credit’s outstanding balance. A home equity line of credit can be put in place prior to ever having incurred any Federal student loan debt (i.e. upon graduation from high school) or the line of credit can be used to pay-off an existing federally funded student loan balance.

Student Loan Forbearance and Deferment: It is possible for a struggling student to qualify for temporary relief from having to make any student loan payments. Student loan payments are put on hold. However, this alternative is less than ideal and leaves the borrower in a worse situation than before because interest will continue to accrue on the unpaid balance, unless you’ve been approved for a deferment (more on that in a moment). Thus, forbearance increases the amount you owe unless it is possible to obtain an interest-only option.

However, the federal government also offers interest-free deferment options, which means no interest will accrue during your deferment period and your debt will not increase. A borrower, however, must apply for this deferment option and meet one or more requirements.

If you’re having trouble making payments, the best thing to do is to always contact your lender and find a sensible, temporary solution until you can begin payments again–either secure a deferment or forbearance. It is better to discuss the problem with your lender rather than avoiding any communication and letting your loan payments fall delinquent.

On that note, always make sure your lender has your latest contact and address information. If you fall behind on a loan payment without realizing it–i.e. you had to cancel a debit card because you lost it and got a new card, but forgot to update your student loan account with your new payment information–and if the lender is unable to contact you as payments become delinquent, they might immediately place your account in default because 1) you are not making payments and 2) they no longer have your most current contact information to resolve the late payments, which poses a big problem for them.