Starting Your Life with Student Loan Debt: How to Balance Your Budget
The vast majority of college graduates are starting careers overwhelmed by student loan debt. If you just graduated college with debt, read this!
So, you have managed to climb to the top of the mountain and planted your flag.
You have donned your cap and gown; making that coveted procession as “Pomp and Circumstance” played in the background.
Congratulations on your accomplishment.
Now that you are in the “real world” there are some harsh realities to face. One of these realities is the mountain of student debt that you have to repay. Here we will discuss starting over with college debt.
College Debt Statistics
The statistics surrounding student loan debt are nothing short of staggering.
The average college graduate in the class of 2017 walks away with a hefty $39,400 college debt—increasing by six percent from the previous year.
The total student loan debt in the US is nearly $1.5 trillion, and this is spread among 44 million borrowers.
To put into perspective, this debt surpasses the total credit card debt by a whopping $620 billion—yes that is over a half of a trillion dollars.
Let’s take a closer look at what these numbers mean for borrowers.
The average monthly payment, for borrowers between the ages of 20 and 30, is $351. The median student loan payment for this same age group is $203 per month.
The Cost of Education
Various factors go into the amount of tuition a student is required to pay to attend a college or university. There are also additional fees that are charged relating to enrollment and attending the institution. The cost of tuition and the other education-related businesses varies by college.
The price range for college costs is wide. The primary determinate of tuition is the type of school the borrower is attending. The cost of going to an in-district (community) two-year college is much less than attending a private four-year college.
The average tuition costs are as follows:
- Public Two-Year College (in-district): $3,440
- Public Four-Year College (in-state): $9,410
- Public Four-Year College (out-of-state college): $23,120
- Private Four-Year College: $32,410
How Debt Works
Debt is an amount owed by a borrower to a lender. The borrower and lender agree to the terms of the repayment of the loan at the time of lending. In some case, the lender will report the payments—or lack thereof—to the credit reporting bureaus.
Credit reporting bureaus are businesses that have created scoring systems for borrowers based on their payment history to creditors (lenders) that participate in their credit reporting platforms. When looking to purchase a home or automobile your credit is one of the main determinates in dictating your approval and interest rate.
Loan Repayment Plans
More than 90% of the student debt today is loans backed by the federal government.
Loans backed by the federal government have eight different payback options. Your lender can help you with determining what option is right for you. It is crucial to consider your career choice when you decide your repayment plan. There are options designed to t take into consideration that you need time to begin earning before you can realistically make the payments on your loans.
Federal loan repayment plans include:
- Income-Based Repayment
- Pay as You Earn
- Revised Pay as You Earn
- Income-Contingent Repayment
- Income-Sensitive Repayment
Deferment and Forbearance
Deferment and forbearance are processes that allow borrowers to temporarily stop making payments on their student loans or reduce the amount required. To get a deferment on a student loan, the borrower must apply with their lender. Approval for a deferment period means that payments will be postponed and interest may not be incurred during this period.
Forbearance is for borrowers who are unable to make their regularly scheduled payments but do not qualify for a deferment. Borrowers in forbearance may still incur payment and interest during this period. The lending institution that made the loan can help with determining which process is right for you.
Student Loan Refinancing
The student loan refinance option is available for some borrowers.
The higher your interest rate, the more you will benefit from refinancing your student loan. A decrease in your interest rate will, in turn, reduce your monthly payments. Refinancing your loan will not hurt your credit—unless you are delinquent on your payments.
Student debt may seem impossible at the beginning, but proper planning and consistent payment are the cornerstones to addressing debt of all types. Understand that your future relies on being creditworthy, and that means paying all reported debt—including student loan debt—consistently on time.