Tips for Tackling Student Debt
If you’ve searched for a job in the past few years or so, you’ve likely come across the startling realization of the few jobs that will consider applicants without a college degree. While education is important for quite a few reasons, receiving a college education in the United States is an investment, but a risky one nonetheless. Despite the fact that a good amount of jobs require a degree of sorts, having a degree doesn’t guarantee a job offer.
Many college students today are faced with the nightmare of having to take out student loans, sometimes at high interest rates. After four years of undergrad, many are left with debt comparable to a mortgage. And, without the guarantee of a full-time job and a livable income, this increasing debt can become unmanageable. Our financial experts at Royal Oak understand this unfortunately inevitable burden that’s placed upon students seeking to be successful in their careers and have put together some suggestions for tackling this debt head on.
Be Strategic about Paying
- Pay off Interest ASAP: Unless the loans that you’ve used towards tuition were Federal Subsidized loans, which don’t accrue interest while the borrower is in school or the loans are in deferment, the interest on student loans begin to collect interest as soon as they’re taken out. Therefore, if you took out a loan for $10,000 at the first semester of your first year at a 7% interest rate, that loan will already have increased to $12,800 by the time of graduation, equivalent to $700 extra dollars every year. Assuming you take out the same amount every year, the amount of extra interest alone could be unaffordable. We recommend making your best attempt to pay off the interest while in school. While sometimes paying off the entire interest is unaffordable, anything counts.
- Pay off the Higher Loans First: Commonly referred to as the “Avalanche Method” of repayment, paying off the highest loans and those with the highest interest rates first can both speed up debt repayment and cost you less in the long run.
- Pay More than the Minimum: This statement is true for most outstanding balances. Paying more than the minimum required payment every month, even by a few bucks, is your best ally in the face of debt. Paying just the minimum leads to a standstill between payments and increasing interest.
- Pay Big Sums Forward: Birthday money? Did a relative just give you a big sum of money? Did your federal tax return just come in? While you might want to take that to Las Vegas and have a great time, you do have to remember that you have student debt. Putting these large sums towards your debt could make a significant dent.
- Budget: Yes, we know. When you’re young and full of vitality, not spending money is difficult. However, a few budgeting attempts here and there could really add up. For example, replacing your bi-weekly restaurant outings with home cooking could save you upwards of thousands each year. Cutting out small things from your lifestyle could lead to quicker debt repayment, pushing you closer to a life free of student loans.
- Live at Home: Yep, we went there. While moving back home after school might not seem like the best option, living home for just a year could save you well over $10,000 that you would’ve spent on rent, utilities, and other expenses. That’s money that you could put towards debt.
- Take any Job You Can Get: While you might be tempted to wait for your dream job to come out of the blue and make you an offer, chances are, it’s not going to happen that quickly or easily. Although it might not be the most glamorous job, taking what you can get upon graduation is better than nothing… literally. Additionally, upon entering the workforce, whether in your intended field or not, you’ll begin to meet professionals who will help you network your way to your dream job. It might take some time though. But, in the meantime, get a job and pay off those debts.
- Refinance: Depending on your income, credit, and other factors, refinancing your loans could be an option. By refinancing, you’re essentially “selling” your debt to a credit union or bank. This means that you’ll still have to pay off your debt but at a potentially exponentially lower interest rate.
- Student Loan Forgiveness Plans: Some graduates might be eligible for federal loan forgiveness. For instance, if you work in, or plan to work in, public service or within a non profit or a significant amount of time (over 10 years) then the remainder of your federal, not private, loans may be eligible for forgiveness. This is similar for teachers who’ve worked for over 5 years.
- File Your Taxes Correctly: Graduates who still have interest on their student loans can be eligible for tax deductions. Depending on the amount of interest, you can save on your income taxes, up to $2,500 back on your tax refund, by filling out a 1098-E. For assistance in filling this form out and with general tax inquiries, call Royal Oak Financial Group and we’ll help you out.
Until a better system is put in place, student loans are going to burden millions of Americans every year. Contact Royal Oak Financial Group today for assistance with repaying your student loans. We’re experienced and more than happy to help!