Managing Student Loan Debt Wisely - Untemplater ? Untemplater

The Occupy protests early in 2012 served to highlight the growing seriousness of outstanding student loan debt in the United States. According to a report issued by the Federal Reserve Bank of New York in May, the total outstanding educational debt in the nation rose by $30 billion during the first three months of the year for a total of $904 billion.

There are three easy steps you can take to better manage your student loan debt: know what you owe (sounds obvious but you?d be surprised how many grads don?t actually know their loan balance), think outside the box, and beware of acts of desperation. With increasing talk of the ramification of this ?bubble? bursting, financial pundits offer a range of advice for direct loan consolidation and payment to prevent the emergence of a virtually indentured class in America.

?Multi-Generational Debt

This situation is not confined to the students themselves, but extends to their parents. In response to a call for personal stories about loan debt in Denver, an overwhelmed parent wrote to the Denver Post, ? I am still paying my adult children?s student loans, and the balances didn?t really move down by only paying the minimum. I?m not convinced that an undergraduate degree (or a master?s degree) is worth decades of crippling financial debt.?

Another woman described her fianc??s earnest efforts to begin repaying his loans immediately after graduation. ?He is responsible for paying a monthly bill that exceeds our rent,? she wrote, adding that an Experian credit report indicated the young man has a 98 percent debt-to-income ratio. The couple is faced with ?living? on only 2 percent of the man?s earnings. ?We know that you have to spend money on education, but at the moment it barely seems worth it.?

As long as these real-life horror stories continue to pile up with little to no direct government relief, the student loan crisis will not only create a growing class of debtors working just to feed their loan bill, but it is also rapidly eroding the perception that a higher education is a good investment. What bodes for the U.S. in terms of a future competitive skills deficit internationally is truly sobering.

Know What You Owe

The average amount a new graduate owes in student loans is $40,000 although some individual cases are twice and even three times that amount. The first step in managing student loan debt is simply knowing exactly what you owe, to whom, at what interest rate, and with what terms for adjustment. With federal loans the options include forgiveness through work with qualifying programs and payment adjustment by income level.

About $7 billion in educational debt is held by private lenders. These terms are highly specific to the given loan and generally involve variable interest rates. There are rarely any avenues for forgiveness, and no income adjustment, so loan consolidation negotiations may be the graduate?s best bet. Any loan consolidation focuses on arriving at one interest rate and one payment if at all possible.

Think Outside the Box

Some companies and even communities are offering to help qualified graduates pay down their student loans as part of benefits or incentive packages. This may involve agreeing to work at a set wage for a period of years with no raises, or in the case of communities, to live and work in the town for a specified length of time. This is a strategy that has long been common in the medical profession to attract doctors to rural communities.

Since many young people under the age of 30 are finding themselves struggling with massive loan debt to the point of deferring major life decisions like marriage or buying a home, accepting one of these offers could be a more flexible and pleasant solution. The alternative may be to spend 20-25 years struggling to resolve federal student loans before automatic forgiveness takes effect.

Beware Of Acts of Desperation

One dangerous effect of the recession over the past four years was the erosion of 401k retirement funds. The consequences of this development will be felt for years to come as health care costs continue to skyrocket and the state of the national debt endangers federal programs like Medicare and Medicaid. Anyone with a 401k should think twice before taking out the money to use it against student loan debt.

Resolving the debt may seem like an attractive choice, but remember that in most cases taking money out of a 401k before age 59.5 means taxes owed on the distribution as well as a 10 percent penalty fee. When the tax math is figured, there may be no savings over simply continuing with loan payments. Additionally, it?s hard to make a positive argument for damaging any retirement fund in a shaky national economy.

Until better solutions can be found, managing student loan debt is not unlike managing any debt. Even if it?s necessary to lengthen the life of the loan with lower payments due to economic status, the largest goal is avoiding a default that would ruin credit standing and get into a situation where fees elevate the principle. Most people do not realize that student loan debt cannot be disbursed in a bankruptcy, making educational debt an obligation that is impossible to ignore.

Untemplaters, how long did it take you to pay off your student loans? Did you get any help from your parents or employer?

Source: http://untemplater.com/personal-finance/managing-student-loan-debt-wisely/

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