A lot of buzz has been generated around what is now being called the Student Debt Crisis. This week the New York Times ran an article about debt collectors cashing in on a trillion dollar industry. With rising tuition costs, and the paradox of a necessary-but-devalued college education, the problem is only going to get worse. Some economists fear that this Student Debt Bubble will become the next housing bubble (and subsequent bust). With a weak and stagnant job market, many students are graduating with no work options to pay off these loans.
Most student loans cannot be forgiven, even through Bankruptcy. Predatory debt collectors are taking advantage of this, using any means at their disposal to hunt people down and collect that money, including garnishing wages and withholding Social Security
The best way to insure this doesn't happen? Repayment. If you have trouble making payments on time, try these.
Automatic Withdrawl
Most loans will have an AutoPay option, this will deduct the payment balance from your bank account at the same time every month. This way you can ensure that your loans are being paid on time and not accruing late fees and tanking your credit score. If you are not careful, late fees can quickly and dramatically increase your total payments on the life of the loan. If you want some peace of mind, set these for a few weeks to a month in advance of when the loans are due. This way you don't have to worry having enough money in your account to cover rent AND loans.Target High Interest Loans First
This is a big one, the higher the interest rate on a loan, the larger your overall payments will be, even if the loan is for a smaller sum. The faster you pay down your high interest loans, the less interest you end up paying, and the more money you keep for yourself (or your other loans).Pay More than the Minimum
Related to interest rates, your lenders WANT you to pay the minimum balance. This ensures that they get the most money out of you because of, that's right, interest. The longer it takes you to pay a loan, the more it ends up costing you. Do yourself a favor and pay what you can afford to, not just the minimum. It will make things tight in the short run, but much much easier in the long run.
This is assuming that you have the money to pay your loans every month. If you don't, fear not, there are options for you. Private lenders often have different repayment plans that will match your income, and can be called for a free quote. You may also try to get your loans Deferred, or suspended without accruing interest for a set amount of time.
The Federal Government also has several repayment programs available, which can be found here. More on these options to come in Part 2.
