How to Deal with Student Debt

Student loan debt is the second highest consumer debt category behind only mortgage debt; it even surpasses credit card debt and auto loans. Student loans have become pervasive throughout the degree-holding population, but they don’t have to be overwhelming or life-changing. By minimizing loan amounts and choosing the right repayment plan, both parents and graduates can effectively deal with their debt.

The College Years

Student loan debt has increased by 302% over the past 13 years. In 2004, the total U.S. outstanding student loan debt was $346 billion; that amount grew to $1.39 trillion by 2017. This equates to $32,731 owed per borrower on average. Though it’s hard to avoid taking out loans for college, you don’t have to be one of the 44.7 million student loan borrowers. Wages earned while working part-time during college or summer break can contribute to tuition costs. Additionally, applying for scholarships, graduating early, and starting out at a community college can chip away at expenses or eliminate the need for loans. Even if you’re unable to completely cover the cost of college, borrowing as little as possible is the least you can do for your future finances.

Repayment Plans After College

Whether you take out a large loan or a small loan, there are a number of paths that you can take in order to pay it back in full, one month at a time. That’s the most common repayment plan— regular monthly payments. This plan is beneficial if you have a steady income and aren’t living paycheck-to-paycheck. It’s important to keep in mind, though, that your debt will accrue interest even if you’re making the payments on time. If your income isn’t so secure, income-based repayment is a good option. Income-based repayment is sponsored by the government and allows federal student loan borrowers to pay a percentage of their monthly income towards their loans. This plan tends to be a good fit for entrepreneurs, freelancers, and those who make under $50,000 a year. You may also choose to take the refinancing route which can help borrowers secure a lower monthly interest rate. However, the advantages of refinancing student loans with a private loan provider depend on your credit score and how easily you can make the payments. An honest reflection of your financial situation should lead you to the repayment plan that is best for you.

For Parents of College Students

Young adults early in their careers aren’t the only ones with student loans; more and more parents are taking out Parent PLUS loans in order to make up the difference. While the annual limit on federal student loans is $5,500-$7,500 per year, Parent PLUS loans have no limit and can be used to pay for the total cost of attendance. Today, at least 3.4 million people owe Parent PLUS loans with an average balance of $25,600 per borrower. However, there are options for parents seeking to repay these loans. Parent PLUS loans can be refinanced just like regular student loans; this option may be appropriate for parents with solid incomes and high credit scores. Parents can also indirectly transfer their loan to their child through loan refinancing. Many parents begin planning for retirement as their children approach early adulthood, so properly dealing with Parent PLUS loans is a must.

Student loans have become a necessary evil for the majority of people who seek to earn a college degree. Being wise with your money during college and choosing the right repayment plan can alleviate this financial burden so that you, as a parent or recent graduate, can enjoy the post-college years without too much stress.


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