Wednesday, December 12, 2012
8 Ways to Keep Your Student Loan Debt From Crushing You
How to manage loan debt so you don't run into trouble
By Kristin Kloberdanz
Whether you're signing up for your first student loan, trying to manage payments as you move on with your career, or have just realized you're in danger of default, student loans can be overwhelming.
In an interview with TakePart, Lauren Asher, the president of the Institute for College Access & Success, which runs the nonprofit Project on Student Debt, shares her tips for staying out of student loan trouble. She says:
1. Know your loans. “Know what you owe and to whom,” Asher says. “Know what kinds of loans you have, how much you owe and where you are supposed to send your payment. It sounds simple yet it is not for many people.” If you have a federal loan or loans, stay on top of your loans with their online management sites. If you have a private loan or loans, make sure you are aware of all of their rules, which differ greatly from federal. “Federal loans have protections and forgiveness while private lenders aren’t required to carry any protections.”
2. Stay in touch with your lender. “If they send a bill and you don’t get it, you’re still responsible,” Asher says. “It’s on you so they know how to find you and you’re up to date. People move a lot and change addresses and phone numbers. Staying in touch with your lender will really help you stay out of trouble—trouble you may not even know you’re in.” If you have several loans making this difficult, check with an advisor about possibly consolidating them so they are all in one place for one payment. However, Asher says, never consolidate your private loans with federal because you will then lose your federal protections!”
3. Review your repayment options. “The faster you pay your loan, the less you’ll pay in interest,” Asher says. “But if you pick a payment you can’t manage, it will send you down a bumpy path.” A great place to look at repayment options—specifically ones that are income based—for federal loans is http://www.ibrinfo.org, a site created by Project on Student Debt.
4. Contain the cost of your loan. Asher recommends talking to your lender about lowering the principal. You can do this by including a written request to your lender every time you pay extra to make sure this extra money is being applied to the principal rather than future payments (which include fees and interest). Keep detailed records and make sure the overpayment was diligently applied. If you are able to pay off a loan, pay off the most expensive first as well as the private ones, which will generally have a higher interest rate. And always check to see if your profession offers loan forgiveness.
Stay out of trouble. Asher says the best way to do so is simple: Make sure you pay on time. If you're concerned about making a future payment or if you've missed a payment:
1. Talk to your lender: “Before it gets any worse, be upfront with your lender,” Asher says. “There may be options you aren’t aware of.” There is information on the federal sites, and you may be able to temporarily suspend your payment (although beware of the costs) or replace with a more manageable loan plan.
2. Explore other options: Look beyond what the lender tells you. Asher recommends checking out www.studentloanborrowerassistance.org and www.studentaid.gov to make sure you understand the full range of options available. Also check out reports from the Consumer Financial Protection Bureau to see if there are any specific complaints about your lender so you can handle the issues upfront.
3. Time is of the essence: “If you are delinquent on a federal loan but haven’t yet defaulted, there is time to get out of delinquency,” Asher says. “Once you have defaulted there are fewer options. And your credit rating can be ruined, and it can be hard to get an apartment and car loan or even a job. You can see your wages garnished, your tax refunds claimed and eventually your Social Security may see a bite taken out of it if you default on a federal loan. It takes nine months to default on a federal loan, so talk to your lender as soon as possible before you crash and burn.”