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Tips for Managing Student Loan Debt

As if finishing college and being unleashed in the real world isn’t stressful enough, today’s graduates carry around the added pressure of having six months to find a job so they can start paying back the money they borrowed to fund their education. And with record tuition costs forcing most students to take out multiple loans, the idea of several first payments becoming due at roughly the same time can be downright unnerving.

If you’re among the worried and frazzled graduates who are watching the six-month countdown tick away, there’s no need to switch into panic mode just yet. There are options for managing your student loan debt, from short-term solutions like being granted a deferment to long-term, money-saving resolutions like getting a debt consolidation loan. By following some basic budgeting advice and knowing the options that are available, you should be able to relieve yourself of student loan stress so you can concentrate on what’s really important: landing the dream job you went to college for.

Before learning what your options are, you should first understand why it’s important to put a student loan management plan in place before your debt spirals out of control. If you can’t afford the payments and you default on your loans, the lenders will make reports to the three major credit bureaus and assign your accounts to collection agencies. In doing so, your loan will become accelerated, which means the entire balance of each loan will become due in full. With that much debt, the collection agencies will have a strong case for convincing a court to garnish your paycheck and seize your tax returns. At that point, it will be too late to bail yourself out because the damaging marks on your credit report will prevent you from getting a debt consolidation loan or any kind of credit. For that matter, they may even keep you from renting an apartment or getting a job. By working things out in advance, you won’t have to face these problems when it’s time to start making payments on your student loans.

A Menu of Options

  • The preferred and most absolute method for managing several student loans is through debt consolidation. By borrowing enough money to pay off all of your student loans, you’ll be left with only one monthly payment that will be much lower than the combined monthly total of the student loans would have been. Furthermore, assuming a majority of the student loans were taken out a few years ago, you’ll end up with a lower interest rate. That means the money you’ll spend over the life of the loan will be far less than the cash you would have parted with had you kept your student loans.

  • Another option is deferment, which basically means your loan is put on hold for a set period of time. To qualify for a deferment, you have to prove to each of your lenders that you’re experiencing some sort of financial hardship, an inability to find employment or a disability. While this might sound like a good deal on its surface, there are several downsides. You have to apply for a deferment with each of your lenders, which can be a lengthy process. Until you’ve been approved, you’re still expected to make scheduled payments. And when your deferment periods have ended, the low interest rates that have resulted from the recession will likely have risen. That will make debt consolidation a less attractive option, and you could be stuck with your costly student loans for years to come.

  • Another option is forbearance. This is much like a deferment in that your payments are put on hold for a set period of time–but it differs in that the interest you accrue is not. Forbearance is usually granted for health or personal problems or a career-related issue, such as serving a medical or dental residency. However, many graduates feel forbearance simply puts off the inevitable and, because it allows interest to accrue, doesn’t do them any financial favors. Contrarily, a debt consolidation loan offers an immediate, manageable solution that saves you money now and in the long run.

  • The final option, discharge, might be a better deal than debt consolidation, deferment and forbearance, but it’s not an option you’ll likely want to utilize. A discharge is granted when a borrower dies or can prove 100 percent disability.

Just remember–whether you feel debt consolidation, deferment or forbearance best works for you, it’s important to make a plan for managing your student loan debt before you start running into trouble. Because if you default on your loans, none of the aforementioned options will be available.

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