4 Things You Should Know About Managing Your Student Loan Debt
The student loan debt statistics in our country are staggering.
As it stands, student debt in the US is around $1.7 trillion. This accounts for over 43.5 million borrowers with an average of roughly $37,000 in debt. If you’re struggling to manage your student loan debt, it’s important to know that you aren’t alone.
That doesn’t make it any less stressful, however. Coming out of school with tens of thousands in student debt makes it feel like you’re climbing a mountain to get to financial stability. If you’re still stuck at basecamp, this post is for you.
Today, we’re going to help you learn how to effectively manage your student loan debt by telling you 5 things you should know. Student loan forgiveness may be far away yet, but keep reading and you’ll have concrete strategies that you can enact to deal with your own debt.
1. Get a Full Picture of Your Situation
As a new graduate, you probably haven’t dealt with as significant an amount of debt as this before. Your first move should always be to learn as much as you can about what you owe and the terms involved in each loan.
Many students finish school with multiple loans, both from the federal government and private lenders. This is the result of students having to find new financing with each passing scholastic year.
Start by calculating how much you owe in total. You can’t create a debt management strategy without an understanding of how deep into debt you really are. While you’re doing this, analyze the terms of each loan.
Different loans have different repayment rules and interest rates, so they can’t all be treated the same. Taking the time to understand everything will help you avoid paying unnecessary interest fees and penalties.
Student loans often come with grace periods, which is the length of time that you have after you graduate before repayments begin. If each loan’s grace period differs, you can use this to your advantage when making a repayment plan.
2. What Defaulting on Student Loan Debt Looks Like
After you’ve thoroughly examined your student debt situation, you should take a look at the consequences of defaulting on your loans. After the grace period ends, you’re required to start making payments on your loan immediately.
Missing the odd payment here and there is normal, whether you’re a recent graduate or a 40-year-old professional. What’s different with students is that there’s not as much job stability coming out of college, so it’s more likely that someone could default on their student loans.
If you stop paying your student loan for 90 days, you’re considered delinquent. When it goes up to 270 days, you’ve defaulted on the loan, which can have long-term consequences on your credit.
The government also has its ways of getting money back, whether it’s garnishing your wages or deducting a percentage of each payment for “collection fees”. If you’re dealing with private lenders, your loan could go to a collection agency, which will also have a detrimental effect on your credit.
It’s easy to see how these things can snowball out of control. Understanding these consequences is a crucial aspect of debt management.
3. Doable Debt Management Tactics
There are a couple of debt management tactics that you can employ to lessen the burden of student loan repayment. One is to consolidate your loans, which means taking out a separate loan to pay back your student loans.
The idea behind debt consolidation is that it can simplify your monthly payments, making them easier to wrap your head around. Be careful when doing this, as the terms could result in you paying more in interest over a longer period. You also lose your ability to defer repayment when you consolidate.
Another popular repayment technique is the debt avalanche. It’s a simple concept whereby you focus on paying off the loan with the highest interest rate first, budgeting an overage to get it paid off more quickly.
Once it’s paid off, you take the money that you were paying on the first loan, then allocate it to the loan with the next highest interest rate. Each subsequent loan is paid off more quickly, like an avalanche sliding down a hill.
4. Deferring Payments
Not all recent graduates are going to be capable of enacting these strategies. If you know that you aren’t able to pay your loans back, you need to look into deferment or forbearance. These options are both designed to buy you time until your finances allow you to begin repayment.
This is always an option for those that aren’t yet employed. If you qualify for a deferment, your federal student loans are pushed back and, in most cases, you aren’t charged any interest.
Forbearance is a similar idea that you can attempt if you don’t qualify for deferment. It allows you to temporarily stop paying your loans, but the interest over the agreed-upon period is added to your principal.
5. Loan Forgiveness and Bankruptcy Law
If you find yourself in a truly dire financial situation, you may be able to obtain loan forgiveness in bankruptcy. To do so, you need to hire a bankruptcy lawyer and start by filing a lawsuit as well as a bankruptcy case. This is known as an “adversary proceeding”.
In order to win your lawsuit, you need to prove that you’ve suffered undue hardship, which is more than the average financial problem. To prove this, you and your lawyer need to establish 3 things.
The first is that by repaying the loan, you can’t maintain a minimum standard of living. The second is that you’ll be unable to repay the loan because of a particular set of circumstances (ie. disability). Finally, you have to prove that you’ve tried to repay the loans in good faith.
It’s incredibly hard to establish all 3 criteria. If you think that this route may apply to you, consult with Meredith Law Firm LLC and we’ll evaluate your situation and proceed if it’s consistent with this bankruptcy law.
Start Managing Your Student Loan Debt Now
Student loan debt is one of the trickiest financial situations to dig yourself out of. The key is to use these tactics and exercise patience because it can take years to put student loans behind you.
If you feel like an adversary proceeding is the best option for you, contact us for a free consultation on your case and we’ll help you move forward.