If you’ve graduated from college or graduate school in the last decade, I don’t need to tell you that college tuition is rising at an unsustainable level or that we are graduating with monstrous student loan debts-to the point that Americans’ total student loan debt has surpassed our credit card debt for the first time in history.
There’s lots of talk about the calculus of return on investment in education. I get plenty of emails from readers with six-figure student loans for degrees in social work who have a very difficult financial road ahead.
Sure, if you’re 18 and have the foresight to choose a reasonably priced college and an in-demand field of study, great. But if you’re older, wiser, and deeper in debt, how do you attack those student loans?
We’re going to get into the pros and cons of repaying student loans early versus hanging onto that money for things like an emergency fund, retirement, a home, or even just having fun. But first things first: When you’re starting down a big student loan balance, you want to be sure to do two things:
- Make a plan
- Make your payments
Make a plan
I made a payday loans direct lender Green Forest spreadsheet with all of my student loans, their balances, monthly payments, and interest rates. I then set up automated monthly payments through each student loan servicer’s website. (For those curious, I had student loan interest rates of 5% and 7.6% and only made regular payments until my balances were about $1,000 each-at which point I paid them off in full.)
Usually I prefer to set up automatic payments through my bank’s online billpay because I can control them all in one place. I made an exception for my student loans for two reasons:
- One of my servicers, NelNet, gave me a 0.25% interest rate reduction for having AutoPay through them.
- With loans that have a variable interest rate, the payment amount changes every so often. Having AutoPay through the servicer’s website ensured I didn’t have to remember to update the payment amount every time the rate changed.
If you have several student loans, is a new app that can help you get to that level of organization. shows you charts of your loans by balance, payment, and APR, so you know where to focus your payments. You can also get targeted advice on applying for options like deferments, payment plans, forbearance, or consolidation. What they’ve done seems cool so far; I’m not sure it’s necessary if you only have a couple of loans, but if you have a half dozen or more this may definitely help keep them straight.
Make your payments
You probably know by now that if you stop paying a credit card bill, your credit score goes down and it will be difficult to get new credit when you need it. The bank will send your account into collections and you’ll get lots of phone calls and letters until you pay up. You can even be taken to court and a judge can order your wages garnished.
If, however, you get into such serious financial straights that you need to declare bankruptcy, a judge may rule that you do not have to pay credit card debts and you get a fresh start.
With federally guaranteed student loans, you don’t have that option. Even bankruptcy does not relieve you from paying student loans. In addition to taking you to court and garnishing your wages, the government can withhold any tax refunds. If you default on student loans guaranteed by your state’s finance authority, there may be additional consequences such as suspension of your professional license (for example, to practice law or medicine) in that state.