It’s tough to get a comprehensive view of all of one’s outstanding educational debt. This is frustrating especially if you have a suite of different loan types and sources to fund your undergraduate and/or graduate years. But putting forth the effort to see the total picture will pay dividends in averted late fees, lost interest rate breaks, and other factors that can delay your arrival to “debt-free” status.
1. CREATE A PLAN AND GET ORGANIZED
Set aside a specific time during normal business hours to give your undivided attention to sorting out your outstanding debt sources, amounts, and repayment terms. To get clarity you may need to call the Federal Student Aid Information Center and/or private loan lenders, which are all more easily reached during the day.
2. FEDERAL VERSUS PRIVATE LOANS
Know the differences between your private and federal student loans. Your educational debt may be comprised of only federal loans, only private loans, or a combination of the two.
FEDERAL LOANS
Most students in educational debt have federal loans, which are typically one of four types: Perkins, PLUS, Stafford Subsidized, and Stafford Unsubsidized. All of these can be consolidated into one federal loan at a fixed interest rate. There are several repayment term options, some of which depend on your total outstanding amount of educational debt. You can consolidate your federal loans from different lenders all into one lump loan. This is even true for federal loans that are issued by the same lenders as your private loans.
PRIVATE LOANS
Private loans are educational loans provided by nongovernmental lenders such as banks. There’s been a large jump in the percentage of students relying on private loans instead of federal loans to fund their studies, and this is problematic because they are harder to pay off. They cannot be consolidated with federal student loans. They typically have variable interest rates and in the current economic downturn, many lenders are not even allowing them to be consolidated with other private loans. For most, the best debt elimination strategy entails paying off private loans before the federal ones.
3. GRACE PERIOD
If you’ve finished school and cannot generate income to start payment on your educational debt, there are alternatives to incurring penalties and fees for missing payments. One is the grace period: a period between the completion of a degree or falling below half-time enrollment and the need to start normal repayment. The grace period varies by loan type, but falls in the range of several months. Grace periods vary by loan, so if you choose to go into a grace period for a particular loan, make sure to find out how long it will last. Choose this option instead of defaulting, because just one missed scheduled payment can permanently disqualify you for bonus interest rate reductions.
4. LOAN DEFERMENT, LOAN FORGIVENESS
You make be able to qualify for either a deferment or loan forgiveness. Loan deferment involves delaying payment on outstanding educational debt. You can almost always defer repayment on outstanding educational loans if you are enrolled at least half-time in a school. The deferment programs are numerous and a solid list is on the Federal Student Aid website. For the unemployed, popular deferment programs include the Economic Hardship Deferment and the temporary forbearance option.
Partial loan forgiveness is available from a number of federal, state, and educational institutions. They range from Peace Corps volunteering to teaching to the military and public sector positions as trained doctors and lawyers. A good list of the options is available at FinAid’s website.
5. AVOID DEFAULT
Most critically, avoid defaulting on the debt. The Project on Student Debt contains other valuable tips, but the single most important factor in effectively eliminating debt is to get organized and make a plan, no matter how far or near deadlines loom.
Stay tuned for more quick tips on debt.
Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs. DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.
