The average college graduate leaves school with a debt of over $30,000. In some instances, the amount may go as high as $250,000. Repaying such a huge loan can be overwhelming especially considering that most of the graduates end up either unemployed, in internship, or in entry-level jobs. The income in these situations is barely enough to sustain the graduates through the month.
It is therefore not a surprise that thousands of graduates are defaulting on their student loans every year. Unfortunately, this damages their credit rating and impedes their endeavor for financial stability.
If you are feeling overwhelmed, defaulting on the payments is not a solution. By using some of these techniques, you can free yourself from the burden of student loans.
Utilize the grace period
Your lender has probably given you a grace period of a few months during which you are not required to make loan repayments. This period would be best applied to learn the fine details of are loan and making a repayment strategy.
If you are earning an income, identify the amount you are required to pay monthly and start deducting it from your salary. You can use the amount to start repaying the loan even before the grace period is over. Alternatively, you can use it to start an emergency fund to fall back on in case you lose your income.
Make some payments while still in school
The college environment allows you to live quite a frugal lifestyle. The rent isn’t so high in hostels and you can live on noodles without anyone batting an eye.
Also, there are various part time and freelance jobs today that you can do to earn a sizeable income. If you can discipline yourself to live a cheap lifestyle, you can spare some cash and start repaying your students loan. This will greatly reduce the repayment period and, subsequently, interests and fees.
Make more than the required minimum payments
Even with other types of same day loans people have a tendency to pay just the minimum required monthly instalment amount. This habit is based on the desire to cause yourself minimal stress on your salary.
Unfortunately, this habit only stretches the repayment period and thus increasing the total amount you repay to the lender. Instead, make adjustments to your budget so that you can afford to part with a few more dollars and use them to pay the loan.
The calculation of interest and loan balance is based on the principle. However, lenders usually subtract the amount you repay to pay the interest first. As such, negotiate with the lender so that any extra amount you pay beyond the required amount is deducted from the principle rather than the interest. It will help reduce the total period taken to repay the loan and the total amount paid.
Request for deferment, but keep paying interest
Student loans have some specific situations in which you can request to defer the repayment of the loan. The conditions under which deferment can be approved differ depend on the agreement you have with lender.
Some of the situations in which you may get your loan deferred include:
- If you are in school e.g. for Masters or second Bachelor’s degree
- If you’re unemployed
- Serving in military
- In extreme financial hardship.
Note that during the deferment period, loan will continue attracting interest. Seek a deal that allows you to keep paying the interest during the deferment period.
Seek loan forgiveness and employers help you repay
Some employers seek to attract the best talent by offering to repay some portion of their student loans in advance. The government will also forgive your loan under some conditions such as serving in some jobs such as teaching, law enforcement, and healthcare.
Identify such employers and the conditions under which the government can forgive some of your loan and apply if you qualify.
Avoid accumulating other huge loans
After graduation the community around you might put pressure on you to make attain some major milestones such as marriage, or owning a home/car. As a fresh graduate, chances are that you cannot afford these changes.
If you give in to the pressure, you will need to take in loans that will only sink you into deeper financial hardship and make it harder for to repay your student loan. Instead, ignore the pressure and embrace a lifestyle that is within your means.
Increase income, maintain lifestyle
Higher income translates to more financial power to repay your student loan in a shorter period. Keep looking for opportunities that you can use to increase your income.
Get an extra part-time or freelance job, ask for a raise, or seek a better paying job. When your income increases, utilize the extra income to repay the loan rather than changing towards an extravagant lifestyle.
Automate your repayments
Consult with the lender to enroll yourself in the automated payment system. This move has two main advantages.
- Lender reduce the interest rate by 0.25% for borrowers that register in the auto-debut system
- It can be a solution if you are struggling with indiscipline. As such, there is no possibility of late payment and the fees that come with it.
Debt consolidation is a popular concept when dealing in other types of loans such as personal loans. It can be very beneficial if you get a loan that can cover all your existing loans at favorable terms.
While it is also applicable for student loans, experts advise that you should first assess details of your loans to confirm if you stand to gain. For instance, you are advised not to use a private loan to consolidate federal loan. You might lose some benefits found only in federal student loans.
If you are not equipped to determine whether consolidation is best for you, consult a financial expert.
Current college tuition fees are quite high; making student loans almost a necessity for students from poor backgrounds. In this regard, the success of the student loans in facilitating higher education is undoubtable.
Repaying a five figure loan, however, can easily cripple a young graduate financially. You should therefore create a payment strategy that helps you pay the loan in the shortest period possible. This way, you free yourself of the debt faster and you also pay a much lower amount.
Founder Dinis Guarda
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