How to Clean up College Debts
Most students graduate already weighed down with debts- credit card debts and student loans. According to statistics, the average debt of a new graduate is from $20,000 to $30,000; quite burdensome for somebody who will be joining the work force for the first time. Annual yearly income of a fresh graduate is around $30,000 to $ 45,000. That is why some graduates just snub these debts, and instead continue to amass more debts; credit card debts, loan for a new car, and more while making payment as little as possible on their student loan.
This is not a smart move though. The earlier a student pays their student loan the better for them. Every penny spent for interest due to unpaid debts is penny they don’t have for other uses such as vacations, clothes, food even savings and investment.
The biggest debt of a fresh graduate is a student loan. Fortunately, student loans carry with it a low interest rate. If they have multiple loans, their best option is to strive to have these loans consolidated and work out the lowest possible monthly payment on these loans.
Once they are able to work out the best deal on their student loan, the next step to clean up college debts is to pay –off their credit card debts. These debts are very onerous and the earlier they are paid off the better. Start with the credit card debt that carries the highest interest rate until they are fully free of this debt. In the process limit or if possible stop any new charges on the credit cards. They will never get out of debt if they continue charging irresponsibly. Once they’ve wipe-out all their credit card debt, they should only charge what they can afford to pay each month. After paying off the credit card debts, next to be tackled are the non-secured debts or loans such as personal loans, loans to finance a car or furniture.
In the process of cleaning up all college debt, a graduate should strive to save even a small portion of their income every month. They should have at least three months worth of expenses saved in a savings account. This savings will be their fall back if and when they lose a job and will be looking for a new job. This will also prevent them from resorting to borrowing when an emergency arises.
Student Loan Default and Loan Delinquency
Student loan delinquency is what happens when you fail to pay your monthly loan payments and your student loan account is no longer up to date. When you loan is considered as delinquent it actually means that you owe an overdue payment from your lender but you are not yet actually in default. Effects of student loan delinquency include:
• Unfavorable credit consequences
• Overdue penalties and fees
• Possible default
When you fail to pay tour monthly payments for several consecutive months there is a possibility that your student loan will be in default. For nearly all federal student loans, if you miss paying in nine consecutive months, your federal student loan will be considered in default. For a good number of private student loans, three consecutive months of missed payments will put your student loan in default, but this will depend on the particular lender. The effects of student loan default are grave, and must be taken cared of appropriately. Some of the most important consequences are:
• Unfavorable credit consequences
• Insistent collection efforts
• Possible court suit
• Loans may be given to a collection agency
• Salary may be garnished
• Tax returns may be seized
• Disqualification for federal student aid
• Some repayment benefits may be cancelled out
• Loss of professional license
• Incapacity to join the armed forces
When your student loan goes on default these are the possible things that may happen unless you do something about it. Don’t allow the problem to fester, take some action to fix it. Defaulting on federal student loans is usually worse than defaulting on private student loans since the government can move in without the court’s involvement. Another reason why defaulting on a federal student loan is worse is because of the surfeit of repayment benefits that comes with it.
How to Manage Your Finances as a Student
It is undeniably true that most students are already burdened with debts even before they graduate. Most students get a student loan to finance their studies. Records show that the average student loan of a student is $20,000, some have less and some have more. But this amount to a college graduate who is only about to start a job is quite onerous.To steer clear of being buried in debt while still in college, here are some tips for college students to consider:
Opt for a student loan with the best terms
If the federal student loans are not sufficient to finance your studies and you need to avail of a private student loan, do a thorough research on all the private student loans that are being offered. Make sure that you compare the terms and conditions as well as the charges of all the offers and choose one that will give you the most advantage, maybe in the form of lower interest rate, more lenient repayment plan or lower financial charges.
Use your student credit card sparingly
A student credit card is a great convenience, but they should remember that when they use their credit cards they incur a debt. However, since the credit card is so convenient, some students do not have the will power to control its use and use credit card for unnecessary purchases and luxuries. Unbridled use of a student card will drown a student in unmanageable debts.
Pay your student credit card on time
Unpaid credit card bills or delayed payment of these will mean high interest payment plus other financial charges such as penalty fees that will add to a student’s expenses and budget.
Learn to be prudent in your spending
The best way to avoid being stuck in debt is to be penny-wise and prudent in your spending. Try to live within your student allowance so that there will be no need to use your student credit card excessively and incur debts. Prepare a budget of all your expenditure and prioritize your spending.
Learn to save
Save a portion of your student allowance so that you will have something to use in time of emergency.
When Student Loans Need to be Repaid
When Student Loans Need to be Repaid
Graduation time has come and gone, for more than 65% of the graduating batch who have secured student loans to finance four or five years of their college expenses, it is payback time. The average student loan amount per student is about $24,000, and most graduates, now that they have graduated, payment on the loan will begin.
For students who acquired a Stafford Loan, repayment starts 6 months after graduation while on a Perkins Loan repayment starts 9 months after a student graduates. PLUS Loans on the other hand will have to be repaid 6 months after a student is no longer enrolled for at least half time.
Students who have multiple loans have the option to consolidate their loans or merge their loans from several lenders into one single loan with one single payment and one fixed rate of interest. Factors to consider in making a decision to avail of a Student Loan Consolidation are its effect on their interest rates. The interest rate on a consolidated student loan is usually the weighted average of all the various loans acquired.
Another consideration for a new graduate to think about is how soon they want their loans to be paid. Students are given from 10 to 30 years to repay their student loans. A shorter repayment period means lower interest paid on the loan. This will all depend on the students’ starting salary. Remember that other than living expenses, there will also be other costs or outlays charged on their salary such as taxes and their investment on the 401(K) plan of their employer.
Graduates have another repayment option open to them, the Income – Based Repayment (IBR) Scheme. An IBR scheme sets the monthly payment based on the borrowers’ and their family’s gross income and family size. Under the IBR scheme any remaining debt after 5 years is condoned or wiped out. If the borrower is working for a public sector or a non-profit organization, the debt will be written – off after 10 years.
Student Loan Tips for New Graduates
Student Loan Tips for New Graduates
If you are a fresh graduate with an outstanding student loan, and having difficulty landing a job or meeting your monthly debt payment, there are certain information that you need to be aware of to keep your student loan under control. Keeping loan under control involves avoiding additional interests and extra fees, keeping monthly payments reasonable as well as keeping your credit rating good.
Consider these tips on how to keep your student loans under control.
• Be aware of the details of your loan. It is vital to be cognizant of the details of your student loan such as the lender/s, outstanding balance and the status of your repayment for all your student loans if you have multiple student loans. This information will be what you will need and will determine what your options are for loan forgiveness or loan restructuring. If you do not have the records, ask for the information from your lenders or log in to www.nslds.ed.gov where this information can be obtained. For lenders who are not listed, most probably they are non-federal or private loans. You can get in touch with your school to obtain the data if you can’t find the records.
• Be aware of your grace period. Every loan has a different grace period, the lead time from the time you leave school before you are required to make your first payment. Grace period for Federal Stafford Student Loans is six months, Perkins Student Loan is nine months while PLUS loans will depend on where the loan is issued. Student loans from private lenders also vary so it is important for you to get the information. Make sure that you pay your first payment.
• Be in constant touch with your lender. If you have to transfer residence make sure that you inform your lender immediately of your new address, contact or phone numbers and e-mail address. If there is a need for your lender to get in touch with you and their records of your contact information are not updated, this may cause you additional cost. Don’t ignore any communication that you will receive with regards your student loan, mail, e-mail, phone calls. Talk to your lender if you are having problems with your repayment rather than just ignoring it. This could lead to a default which has very harsh and serious and long term consequences.
• Choose the right repayment option. The standard repayment plan for federal loans is a 10-year repayment plan. But if you feel you cannot afford to pay the monthly payments under the 10-year repayment plan you can request for a change in plans. Extending your repayment period will lower your monthly payments but will increase the total interest that you will pay. Another repayment option plan is the Income Based Payment or IBR program. Under the program, your monthly payment will be an affordable amount equivalent to a certain percentage of your annual income and any loan left after 25 years are forgiven.. For those working in the public and non-profit sector loan forgiveness or loan condonation can be obtained after 10 years.
