Just about everyone who has student loans has a story, if not a problem. Education debt now surpasses credit card debt nationally, and is often the primary economic woe of the college graduate. The sad part is that many of the problems people have are preventable if certain things are done in time.
It's the old "If only I had . . . " situation. However, since knowing what to do when is half the battle, here are the top 4 mistakes that are made. Have you made any of them?
1. Not Keeping Track of Borrowing
While you are in school, your mind is on your studies, grades, and getting your degree. You just know a tuition bill is heading your way for next semester, and you need the money to pay for it; so you borrow.
But that total loan debt can add up pretty quickly, so you need to be on top of it. Here, the National Student Loan Data System maintained by the U.S. Department of Education can give you all of the information you need.
2. Not Thinking About Interest Accrual During School or the Grace Period
Keeping track of the amount borrowed is not enough. You have to keep track of the interest as well. Sure, you may have an in-school deferral or a grace period after graduation, but did you know that interest can accrue during that period of time and be added on to the principal amount due?
It's called "capitalization," and it can really increase your debt. However there are a couple of ways of dealing with this.
- First, while in school, borrow as much as you can from subsidized Stafford loans. With these, even if interest accrues, the government pays it, so it never capitalizes!
- Second, if you have a part-time or summer job while in school, think about making interest only payments on your loans. In this way you can maintain status quo and keep the loan balance from getting bigger. If you take out a New Jersey CLASS loan, look at one that is based on interest only payments while you are in school (or interest and principal if you can afford it).
3. Not Figuring Out What Your Monthly Payment Is Before Going Into Repayment
Just like not keeping track of borrowing, not knowing what your payments will be can also be disastrous. How can you make financial decisions about life after school if you don't know what your expenses will be?
If you wait until your loan servicer contacts you, you will be put automatically into a ten year fixed repayment plan. If you have tens of thousands of dollars in loans, that payment can hurt; a lot! If you have federal loans, there are many repayment options that are income based to keep your payment affordable. Use your post-graduation grace period wisely to figure this out.
4. Hiding Out in Deferments and Forbearances Because You Can't Afford the Payments
A deferment or forbearance is not a long term solution; it just kicks the can further down the road. You do not have to make a payment, but interest can accrue in the meantime and capitalize into the principal balance (unless you are in a deferment with a subsidized Stafford loan). See Mistake #3 and do something about your payment plan! You will thank yourself later!
So What Should I Do?
If you live in Southern New Jersey and are struggling with your loans because you made one or more of these mistakes, feel free to give me a call at 856-432-4113 or contact me through this site to schedule an appointment in my Woodbury office.
Or, if you are about to graduate or have graduated, and you want to have a plan going forward on your loans, I can help you plot things out! Planning now can prevent problems in the future!