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Today we have an awesome guest post by Frank McCourt on student debt, how to handle it and avoid it.
As of 2012, the average amount of student debt accrued by graduating students reached nearly thirty-thousand dollars.
For these graduating students, debt is a fact of life that they’ll be dealing with for around a decade after leaving their old alma mater.
Student debt can be prohibitive for many students, and the snowballing interest of forbearance makes it a highly unappealing option.
However, there are ways to brace yourself, or avoid payment entirely, by planning ahead when it comes to how to manage student debt before it becomes a problem.
Here are three strategies to consider when a future of student loan payments is just around the corner…
1. Loan Forgiveness or Discharge
Instituted by the U.S. government, loan forgiveness occurs after completing a qualifying program or community service endeavor.
If you’re working as a teacher, doctor, or are involved with the military, there may be a variety of options for you to get a free ride after college to avoid paying student loans.
Many state-based institutions such as teacher associations offer career specific loans which can be forgiven with a certain number of years of service, oftentimes as a means to encourage more professionals to work within the state, for example.
Other organizations, such as the Peace Corps., will often work with its volunteers on forgiveness programs for their service.
However, loan discharge is another type of financial assistance entirely, and possibly the silver lining to an otherwise devastating personal event. While having a relative pass away as an excuse for not completing a paper might be as popular as “my dog ate my homework”, it can have dire financial consequences when it actually happens.
The government recognizes this predicament and is often able to discharge loans when death, or serious disability, impede one’s life too severely to manage repayment.
2. Know Your Options and Best Approach
Depending on your amount of debt and the rates of interest you’re dealing with, there may be preferable options for your situation.
The popular “pay-as-you-earn” repayment plan can make payments significantly lower, but often saddles students with a decade longer of payments than they could have dealt with originally.
Only after carefully measuring each of your options, such as standard, graduated, or other models of payment, should you commit to any course.
While you should ideally stick with the option that results in the least overall sum, be careful to not overextend your finances with the ideal option if it’s not immediately affordable. After all, there’s a reason you needed a loan in the first place!
3. Strategy When You Can’t Afford It
Forbearance can seem generous on the surface, but accruing interest can be crippling in the long term.
It should only be used to keep collections calls at bay and your credit score safe, since allowing interest to accrue alone can be devastating.
Instead of relying on this as your only option for pushing back payments when you can’t makes ends meet, consider reviewing your student loan consolidation options.
Most providers are willing to compete with your current interest rates and help streamline the debt repayment process – especially if you’re dealing with multiple loan providers.
Best of all, this stems the tide of interest that has been gaining against you all the while you were attending college.
While no two financial situations are the same and a piece of cookie cutter advice isn’t always applicable, these methods can be foolproof once you’ve analyzed your personal debt situation and assessed your options.
Managing your student debt wisely – or avoiding student debt entirely – can be the bright start to your life in the “real world.”