Student Debt: Repaying & SavingSubmitted by Stone House Investment Management, LLC on August 2nd, 2018
Walking across the stage and receiving your college diploma can be the first step towards the daunting world of adulthood! While a college degree never can guarantee a career, the only guarantee is one thing that will certainly be staring at students after graduation - student loan debt.
Unless you hit the jackpot on the Megaball jackpot, student loans are an unavoidable part of life for the vast majority of students. This trend isn’t stopping anytime soon as the “average annual cost of a private, nonprofit, four-year education is now $34,740. Net prices for full-time students have now increased for six to eight straight years” 1. According to a recent Forbes article, “in the past eight years, student loan debt has nearly tripled to a whopping $1.1 trillion, and in the past 10 years, the percentage of 25-year-olds with such debt has risen from 25% to 43%” 2.
More concerning is the number of Americans that are defaulting on repaying their debt. A person is considered to have defaulted after failing to make a payment 270 days after it was due. This may seem unimaginable; however, “research on student debt examines default rates three to five years from when repayment begins, arriving at an average default rate of 11.5%” 3. The repercussions of defaulting are dire - credit damage, higher interest rates, loss of forgiveness plan eligibility, and paycheck deductions, to name a few.
In the hyper competitive world we live in today a college degree is quickly becoming a baseline requirement to ensure employment. Education is an investment; however, it is a costly one that needs to be addressed. So what can students do to stay afloat?
Do Not Freeze!
Don’t be scared of that unfathomably large number, it will shrink as you chip away. Making as large of a dent possible on the principal damage will drastically lessen the interest rate. There is also an innate sense of satisfaction that you CAN pay it off. Explore your repayment options and see what federal and state repayment grants and opportunities may exist.
Ask for Advice!
You won’t be the first nor the last person to have a panic attack when looking at your student debt. Consult with those that have already ridden the repayment rollercoaster. Use resources such as the Aid Ombusdsman Group of the U.S Department of Education that offers information about different repayment plans. Research to see if your job qualifies you for the Public Loan Forgiveness Program. Understand the differing grace periods that various loans provide. There are options out there that can lessen your load!
Now that you have a little more knowledge about the world of student debt, create a plan with a financial professional. Devise both short-term and long-term strategies to ensure that you are on track no matter the curveballs life throws your way.
Don’t Settle for the Bare Minimum
It may be tempting to see the minimum monthly payment and think, “that is all I need to do for this month”. Set a greater goal and commit to it - the interest saved in the long-term is staggering. Don’t be scared to do an extra deposit if you stumble into some extra cash, “since there are no prepayment penalties, you can make extra payments of any amount” 5.
You may have become privy to the cost-cutting lifestyle during your college years. Although you are no longer living off of frozen pizzas anymore, do not let those values disappear once you receive a regular paycheck. The extra cash flow can lead to some unnecessarily frequent purchases. However, the 50/20/30 budgeting rule is a simple guideline that can keep your newfound income intact. Allotting 50% of your income towards living essentials and saving 20% for debt repayment should leave more than enough money aside for an adult beverage or two on the weekend.
Make a change today for a better tomorrow!
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2014-2018 Advisor Websites.