Debt Management for College Students: How To Deal With The Debt
When you are a student in college the last thing on your mind is saving money, debt management, the wise use of credit, and pretty much anything having to do with budgeting or finances.
But college can actually create a financial future full of debt and doubt if you aren’t careful. You’ll receive many credit card offers in the mail that seem too good to be true, that’s because they are. Read the fine print! If you’re not cautious you could wind up with more debt than just your student loans after you graduate.
Here are some great debt management tips for college students:
1. Get a Good Grip on What You Owe (Budgeting):
As a college student, budgeting is one of the most important tools that you can learn. Practice disciplined money management by creating a budget that is realistic and one that you are able to stick with. Remember, sacrificing now and living within your means will make it easier for you to get out of debt faster once you have started on your career path after graduation.
2. Smart Debt vs. Not So Smart Debt (Credit Cards):
One of the biggest temptations for college students is signing up for and using credit cards for everyday purchases. College students are magnets for credit card offers. The lenders know that most college students have good financial prospects for the future, as well as a present need for money.
It’s very important to control credit card use for good debt management. As tempting as it may be to use a credit card to go out to eat or buy new clothes, it’s a better idea to curb almost all credit card purchases. The interest on credit cards makes whatever you are buying cost way more than the price tag. Credit cards make it super easy to acquire unnecessary (not so smart) debt. Also, once you graduate from college, you will most likely have student loans to pay off. By adding credit card debt to all of that, you are risking your financial future.
3. Start to Payoff Interest Right Away (Student Loans):
Student loans can be a common way to pay for college. Choosing the right student loan is very important. Student loans are generally considered smart debt because of the asset that college gives you (a college degree). Not only is it a valuable learning experience, but it helps with your employment opportunities. Student loans, especially those from the federal government, usually have decent terms. It also helps that the interest from some of these loans is deferrable.
For example, Subsidized Stafford Loans do not require repayment of interest until after you’ve been out of school for 6 months. However, these loans are “need-based”, so they may not be available to everyone. Unsubsidized Stafford Loans are not “need-based”, so interest will accumulate straight away, but they still have low rates (3.86% for 2013-2014).
It can help manage your debt to make interest-only payments while you are still in college. You’ll want to speak to your loan service provider about this. Since the interest will begin to accumulate anyway, making payments while still in school will help you chip away at the interest.
4. Build up Emergency Savings (Interest-bearing Account):
Redirecting money away from paying down student loans to create an emergency savings fund might sound counterproductive, but having an emergency fund is very useful in avoiding the need to put a surprise expense on a credit card. Once you have all of your credit cards paid down, keeping them paid off every single month is the best way to handle debt, and an emergency savings fund will make it easier to handle substantial unanticipated costs.
How To Deal With Debt After College:
It is not a surprise to learn that the average college graduate has over $35,000 in debt. With this number being projected to grow in the future recent graduates need to become educated on the best ways to handle the debt they’ve accrued. Upon graduation, students that took out loans, while enrolled in college, are required to take the exit counseling. While there is valuable information covered in exit counseling students tend to rush through this process and primarily focus on the requirements that need to be met to receive their diploma. It is during the repayment grace period students must learn the criteria to repay loans and protect their credit score.
Grace Periods For Perkins, Subsidized, And Unsubsidized Loans –
Most graduates have a grace period of six months, depending on the type of loan, before they will need to start making payments. Being proactive and having a plan ready will ensure a smooth transition into repayment. Knowing where and how to make your payments is the first step.
Repayment of a Perkins Loan begins nine months after graduating, if you leave school, or if you are enrolled less than part-time. The interest rate for a Perkins Loan is 5% with undergraduates allowed to apply for up to $5,500 a year and up to a total of $27,500. Direct Subsidized Loans and Direct Unsubsidized Loans have a grace period of six months.
Consolidating Your Loans –
Consolidating your loans is allows you to bring your loans into one payment. It is important to contact the proper institution to start the consolidating process. The Department of Education is an excellent site to start the process but you can also speak with any private lending institution that has government approval. Looking at several different institutions to compare what programs they have and how they fit your needs assures your continuation with the programs.
Deferment And Forbearance –
Not everyone is lucky enough to receive a job offer following graduation or earn the income they desired with their first job. If this is the case and making your student loan payments becomes difficult you may choose to apply for a deferment or forbearance on your loan. Going into deferment or forbearance will temporarily stop your payment, but you need to be cautious with unsubsidized Stafford loans, PLUS loans, SLS loans, or unsubsidized consolidation loans because you will still accrue interest during the deferment process. There are many options to choose from when choosing deferment and forbearance so sitting down with a counselor to individually go over your choice will find a program that is tailored to your needs.
What To Do If You Default –
The worst thing that you can do is ignore your student loan payments. If you become delinquent repaying the loans you are considered to be in default after 270 days. The consequences of falling into default can affect your credit, the ability to get a job, purchase a home, among other things. The government can also have your current employer withhold your wages through Administrative Wage Garnishment. The good news is there are ways to get out of default, but once the damage is done it may take years to rebuild your credit.
Keeping on top of your loans and being proactive will help you get rid of your student loan debt in the shortest amount of time. If you need assistance in repaying your student debt or would like to enroll in a debt management program, please contact Advantage CCS online at https://www.advantageccs.org/