How To Effectively Pay Off Student Loans…

Many of us run up considerable debt for the privilege of garnering a higher education. What many fail to realize is that this is money that eventually has to be paid back, once you have gotten your diploma and moved into a productive job.

Actually, the answer to how to pay off your student loans is quite simple….you write them a check for the amount, either in full or installments) and you send it back to the lender. It is a simple concept, but when you consider the percentage of students to default on their school loans, it becomes painfully obvious that there is a problem somewhere in the mix.

For starters, figure out how much you owe, and to whom. Most of us go through our college years blissfully ignorant of the debt we are running up. Did you take out a Stafford loan? Perkins? Plus? What are the terms? Familiarize yourself with your financial scenario.

Do not mistake grant money for loan money. Grants are free money and do not have to be repaid.

Look at options as pertaining to loan forgiveness. Joining the military or Peace Corps may help you get your loan paid or reduced by as much as 70%. You may get more if you are willing to undertake high risk duty. You may also be able to obtain some measure of loan forgiveness through working as a teacher, or therapist, or through social work.

Know your options, and exercise them. Following graduation, you have a six month period where no payment is required, the idea being for you to get on your feet and acquire a stable income that will allow you to repay efficiently.

As with any loan, the longer you take to pay it back, the more in interest you will pay. Obviously, paying in full would be the preferred option, but if possible, choose the lowest term and corresponding payment that you can handle, and then make that payment on time, each month, every month. You have several options:

Standard Payments are fixed payment amounts made every month over a period of ten years. You get good interest rates, but fairly high payments.

Graduated Payments start off low, and then gradually increase over time, the idea being for the loan to keep pace with your projected salary.

You may also choose Income Based or Long Term Payment plans, designed to stretch the life of the loan out as far as 30 years and make the monthly rate more affordable.

This may seem like a no-brainer but….don’t default! I’ve run into more than one person who basically admitted to ignoring their school loans, with one intelliectual luminary actually telling me that she “thought they would just go away”. No, they are there and will be treated like any other loan. If you default, it goes on your credit history and score, which could affect your ability to purchase homes or cars in the future.

Addendum to the above….in the event of a bankruptcy, student loans are the only loans that are not wiped from your credit history.

If you have defaulted, you can still get back on track, either through the use of consolidation (the combining of various loans into one big loan with a payment you can handle), deferment (the putting off of your loan obligations for a given time), or forbearance (a three month period during which you do not pay due to documented hardship scenarios).

As with any loan, if you have the ability to pay it off early, then do so. Paying a loan early will save you considerable money in interest fees.

Don’t be late with your payments, as higher interest or late fees will add up over time. Make your payment on time, each month, every month, for the life of the loan.

This is not confined to student loans, but a general rule of thumb is to start out early and develop good financial habits, paying your bills on time, living within your means, and not getting carried away with the credit card. Managing your debt takes some work, but establishing good behavior early on can reap considerable rewards later.

If you do find yourself in over your head, unable to effectively manage the mountain of debt you managed to accrue, enlist the aid of a financial advisor who can sit down with you, look at your situation objectively, and start you on a course designed to help you regain your financial footing.

So take out the loans ad get the education you need. But be ready when the piper demands his payment.

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