Actively managing your debt is an important step, and your student debt may be one of the biggest financial obligations you have. There are many strategies that could help you manage student loans efficiently. Here is a checklist.
• Choose a federal loan repayment plan that fits your circumstances:
o The Standard Repayment Plan requires a fixed payment of at least $50 per month and is offered for terms up to 10 years. Borrowers are likely to pay less interest for this repayment plan than for others.
o The Graduated Repayment Plan starts with a reduced payment that is fixed for a set period, and then is increased on a predetermined schedule. Compared to the standard plan, a borrower is likely to end up paying more in interest over the life of the loan.
o The Extended Repayment Plan allows loans to be repaid over a period of up to 25 years. Payments may be fixe d or graduated. In both cases, payments will be lower than the comparable 10-year programs, but total costs could be higher. This program is complex and has specific eligibility requirements. See the Extended Repayment Plan page on the U.S. Department of Education website for details.
o The Income-Based Repayment Plan (IBR), the Pay as You Earn Repayment Plan, the Income-Contingent Repayment Plan (ICR) and the Income-Sensitive Repayment Plan offer different combinations of payment deferral and debt forgiveness based on your income and other factors. You may be asked to document financial hardship and meet other eligibility requirements. See the U.S. Department of Education's pages on income-driven repayment plans and income-sensitive repayment plans for more information.
• Take an inventory of your debt. How much do you owe on bank and store credit cards? On your home mortgage and home equity credit lines? On car loans? Any other loans? Consider paying extra each month to reduce the loans with the highest interest rates first, followed by those with the largest balances.
• Free up resources by cutting costs. Consider eating out less, reducing snacks on the go, and carpooling or using mass transit instead of driving to work. You may also be able to cut your housing costs, put off vacations and reduce clothing purchases.
• Think about enhancing your income. A second job? A part-time business opportunity?
• Consider jobs that offer opportunities for subsidies or debt forgiveness.
o Federal civil service employees may be eligible for up to $10,000 a year for paying back federal student loans. See the U.S. Office of Personnel Management's Student Loan Repayment Program for more information.
o Nurses working in underserved areas may be eligible for loan assistance through the U.S. Department of Health and Human Services' NURSE Corps Loan Repayment Program.
o Service members in the U.S. Armed Forces are eligible for support. Check out the service-specific programs offered by the Air Force, the Army, the Nationa
l Guard and the Navy.
o Teachers can consider programs such as Teach for America and the Teacher Loan Forgiveness Program.
• Sign up for automatic loan payments. Many loans offer discounted interest rates for setting up automatic electronic payments on a predetermined schedule. A reduction of 0.25% per year may look small, but over the life of a 20-year loan, it can reduce your total interest cost by hundreds or even thousands of dollars.
• A last resort is seeking loan deferment or forbearance. Students facing significant financial hardship may be able to put
off loan interest or principal payments. To see whether you might qualify, look to the U.S. Department of Education's information on Deferment and Forbearance.
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Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail email@example.com.
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