Repaying Student Loans

by Sara Nash
(Patoka, IL, United States)

Many students receive thousands of dollars in student loans, making it difficult to pay off over time. Some students have no choice but to get student loans, such as myself. The options may be for many to either apply for student loans to earn a degree, or not go to college at all, or be forced to work a minimum wage job.

Because college is so expensive, and it is so easy to get student loans, many parents choose to save money by not putting money into a college fund for their children, knowing their children will be able to get a student loan. Many parents did not come to this decision lightly, but because of hard economic times were forced to stop putting money into a college fund in order to meet the family’s financial needs.

When the children become of age to attend college they are all too eager to apply for student loans, as the government has made it incredibly easy to apply for student loans. The parents reluctantly allow their children to accrue debt because after their education is complete, they will be able to earn more money than if they had no college education. This seems like a rational decision, the lesser of two evils, if you will.

The problems many graduates run into is this: Either the graduate cannot find a job, as layoffs are growing; or even with their college education, they do not make enough money to meet their family’s financial needs and pay off their student loans. For example, in 2011 in the state of Illinois, there were a total of 676 layoffs, with a total of 72,086 individuals receiving unemployment benefits (Illinois.gov, 2012). Also, according to the magazine USA Today (2012), half of college graduates are either underemployed or jobless. A large majority of these students probably have student loans.

It is true that a student can defer their student loans if they have not found a job, or if they have not found a job that pays well enough to pay their bills and take care of their own financial obligations. However, if the student loans are deferred for too long, it is looked down upon very much so by the scholarly community. If a student fails to pay their student loans as they are supposed to, once they are on their feet, they will likely never be able to get a student loan again, or any government grant, such as a Pell Grant. This is unfortunate, because many students may find a job after college, or even some time after college than get laid off. Once they are no longer able to pay their student loans, and go into default, the student can be in a lot of financial and legal trouble. Students are only allowed to defer payments for six months at a time. If they do not find a job, they have to fill out papers every six months, and if they do so long enough, eventually they will be denied deferment, if they are not denied to begin with.

Troubles not repaying student loans include: loss of federal and state income tax refunds; legal action; Assessment of college charges, including attorney’s fees; loss of professional license, loss of eligibility for deferments; wage, social security, and benefit garnishments. An acquaintance stated that one of the unspoken rules of people who do not repay their student loans, is employers will not or are reluctant to hire them. Employers look down upon graduates who do not repay their student loans. The unfortunate problem with this is that many people do not have a choice. They either have no job, or a job in which they are under qualified for, making it near impossible to repay student loans.

Luckily, there are many ways to repay student loans. The standard repayment plan requires a minimum of $50 a month in a period of ten years. At $50 a month for ten years, the student will repay $6,000 in student loans. Most students accrue much more than $6,000. To repay $40,000 in 10 years, the student will have to pay $460.32, paying back over $15,000 in interest, paying the bank over $55,000 total.

Assume the student is a teacher or social worker, fresh out of college, making approximately $2,000 a month. In my local area, a single person can get a small house or apartment for approximately $600 a month. Adding utilities to average at $300 a month (phone, electricity, water, sewer, etc.) and a car payment roughly $350 a month and groceries as low as possibly $300 a month for a single person – the student has already accrued over $1600 in monthly bills. This is for a single person; if the student is married and has children, they can easily double that amount, as groceries for a family of four will cost roughly $800 a month – and that is eating cheap! They also have to factor in the cost of school supplies, clothes, sports/dance for children, etc.

So you can see how for many, the standard ten year repayment period will not work. There is also a graduated repayment plan, which starts with lower monthly payments and increases over time. There may be no telling how long it will take a graduate to pay off a loan using this method. The loan may take their entire natural life to pay off.

Also, there is an income sensitive repayment plan, in which the amount of monthly payments would be dependent upon the monthly income of the graduate. If the graduate makes less money, the pay less on their payments, if they make more, they pay more.

Last, there is an extended repayment plan, in which the graduate can choose to repay their loan in 10-25 years. This makes the loan amounts lower than they would be using the standard repayment method. This also makes the total repaid higher than it would be for the standard repayment method. For example, the graduate may end up paying $25,000 in interest, as opposed to $15,000 in interest. It would be in the graduate’s best interest to choose the repayment plan that suits their unique financial situation and talk to a financial counselor to create a budget that will allow them to live a financially secure life.

It is obvious that the best choice for students is to attempt to get all the scholarships and grants possible. Unfortunately, many schools like to keep students in the dark about scholarships and grants. It does not make sense, as students will thrive better with less debt. If parents are able, they should put back a certain amount of money every paycheck for their children for college. If the child chooses not to go to college, the child can receive their college money at a certain age, such as 21 or 25. This money can help the child buy a house, car, or possibly pay for a wedding; allowing the child to have more financial freedom and less debt.

In conclusion, it has been established that it is very difficult to repay student loans, and the problems ensuing from failure to repay student loans are great. The problems may follow them for the rest of their lives. It would be wise for the student to choose the repayment plan that best fits their unique financial situation, and stick to their repayment obligations. Making a budget and speaking to a financial counselor would be in their best interest as well.

Illinois department of Employment Security (2012). Annual mass layoffs in Illinois. Retrieved July 23, 2012 fromhttp://www.ides.illinois.gov/Custom/Library
/Statistic/MLS/MLS-annual.PDF

USA Today. (2012). Half of new graduates are jobless or underemployed. Retrieved July 23, 2012 from http://www.usatoday.com/news/nation/story/2012-04-22/college-grads-jobless/54473426/1

Read more tips on Repaying Student Loans from other students and parents who have been through the student loan process.

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Comment from your friendly team at College Financial Aid Advice

Thank you Sara for sharing your thoughtful and well researched essay on repaying student loans. Good luck to you.

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Helpful Advice for the College Student

by Karen
(Augusta, GA, USA)

Many students leave college with significant student loans, and are looking for ways to pay off their loans or student loan debt forgiveness. As a student who did not understand about taking the time to research scholarships and grants, I have accumulated student loan debt over the course of six years.

My initial advice if you think that you need to take out a loan for your education is to speak with the financial aid office to determine what other alternatives are out there for you within the school or based on the degree in which you are pursuing.

The next step would be to read the disclosure and all other pertinent information regarding the loan in which you are approved for (i.e. is the interest rate variable or fixed, when does the repayment period start, and is there an early payment penalty.)

One thing I did not realize is that I did not have to keep the refund checks that were disbursed to me. Send them back to lender!!! There are two benefits to doing this: (1) you will reduce amount of money you owe back to the lender and (2) it will allow for you to have loans in the future should you decide to continue your education at a later date.

The final piece of advice I have for students regarding student loans are if you cannot make your payments on time then you need to communicate with the lender. There are many options in regards to forbearance, deferments, and other loan repayment options that could assist you in being able to take a brief period of non-payment to reducing the financial hardship of a large payment.

Hopefully, this has assisted you in becoming a bit more knowledgeable about the impact student loans can have the income that you are hoping to achieve through obtain a degree in higher education.

Happy Learning and Smart Lending!!

Read more tips on Paying off Student Loans from other students and parents who have been through the student loan process.

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Comment from your friendly team at College Financial Aid Advice

Thank you Karen for sharing some helpful advice for the college student re. student loans. You make a very important point about refund checks. Only borrow what you absolutely need! If you receive extra funds, use those to pay down your loan balance. Loans are not free money, they cost a lot to pay back, much more than the original loan amount. Your financial aid office is an excellent source of advice. Good luck to you.

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Paying off Student Loans 101

by Amanda
(Florda)

The time has finally come. No more late night study sessions, no more ruthless exams, and most importantly, no more Ramen noodle soup for dinner! Four years ago you were pulling away from what used to be your driveway, waving goodbye to your beloved mother while fighting back the tears, and today, it's her turn to hold back the tears as she watches you walk across the stage and put a bittersweet end to your college career. Congratulations, you're officially a college graduate!

A few months of "taking it easy" pass by all too quickly. Finally, you wake up one morning, stumble out of bed, and make your way to the coffee pot. After filling up your mug and taking a few sips, you manage to stop yawning long enough to take a look around. Oh no, there it is: the small envelope containing your first "Hey, we're about to start charging you interest on those student loans" letter. Suddenly, all the horror stories you've heard about people’s student debt drama flashes through your mind. Holding the piece of paper that has now ruined your morning, you realize that the one thing that they never teach you in school is how to pay for it and somehow you've racked up 45,000 in loans... what now?

Well, the first step is to RELAX. Stress and anxiety might give you high blood pressure, but they won't pay off your debts. After taking a few deep breaths and putting an abrupt halt to those unnecessary "worst case scenarios" racing through your mind, you've completed the first step to paying off those loans and you only have 3 more to go!

What is step number 2 in paying student loans 101, you might ask? It's time to budget your expenses. Going out to Applebee's once a week with the guys, hitting the outlets every weekend for a wardrobe update, and spending 200 bucks on that upgrade for the new iPhone are all on top of the "to don't" list. It is crucial to keep track of your spending habits in order to limit them. Spend some time calculating your necessary monthly expenses (rent, groceries, etc.) and make it your new duty to never exceed this limit. Make it a point to look at your bank account and your budget spreadsheet every week in order to categorize all the money going in and out. It's much easier to avoid splurging on things you don't need when looking at your savings straight on.

Step 3: Put that degree to use! It's time to quit your part time, minimum wage job and start your career. Apply for any and all open positions in your field, brush up on your interviewing skills, and take full advantage of any old recommendations or previously made connections (from interning, previous jobs, etc.). A salary income, health benefits, and guaranteed hours will be well worth the effort.

A message for the undergrads: Although you may still be in the process of getting your degree, there is no reason to skip this step. Pick up a few odd jobs that don't require you to take too much focus away from school (babysitting, dog walking, etc.). The extra income adds up and it can't hurt to get a jump start on slowing those increasing loan numbers.

Step 3: Hooray, we have now reached the final step! Although this is indeed the last step, unfortunately, it will not magically make the remainder of your debts disappear. This step is a little more gradual. It's more about embracing your new, no debt lifestyle! Don't be ashamed that your making necessary sacrifices, be proud, be very proud. Whenever you eliminate one loan and receive a debt-paid-in-full confirmation letter, slap it on your fridge like an A+ paper. Stick with your debt free goals, and while you're at it, be impressed with yourself for doing so.

I have covered the most significant factors in paying off your debts, however, I have not covered every factor. To guide you along a bit further, I will list a few additional tips that could potentially aid you on your conquest to becoming debt free.

1. Pay close attention to all paperwork and minor details. Make sure your lenders always have your most recent address, always carefully read all documentation, and always complete forms on time.

2. Increase your payments. Resist the temptation to spend extra money elsewhere, and instead, use it to increase your loan payments. This will reduce the total amount of interest you pay.

3. Consistently stay on top of payments. Missed payments can result in financial penalties, thus setting you back even further.

Eventually, your debts will be paid off—and the only dollar you'll owe is to yourself, of which, you can now comfortably put towards celebrating. Good luck!
Read more tips on Financial Aid Funding from other students and parents who have been through the student loan process.

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Comment from your friendly team at College Financial Aid Advice

Thank you Amanda for sharing some good tips about paying off student loans.

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