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Repaying Student Debt

September 19, 2019 | Michael Blue

So, you went to college, you got the t-shirt, and even got the diploma.  Congratulations! But, if you’re like most Americans, you also left school with close to $40,000 in student debt and a big question: How to pay for it?

The average student debt for 2017 college graduates was $39,400. 

Average debt for 2017 college graduate

$39,400

Unfortunately, many people have debt much higher than this without also having a job that pays enough income to realistically repay the debt. This happens when a person did not fully understand what they were buying in terms of an education, and didn’t have a plan for how they would repay it.  The cost of a college education has been skyrocketing for years, but there are still huge variations in how much a person could pay for a college degree. For example, according to The College Board, the cost of tuition for one year of college in 2017 ranged from $3,520 for the typical community college to $33,480 on average for a year at a private college. 

For those who are still looking at where to go to college, two important questions should be asked before taking on debt, choosing a school, and choosing a major:

  1. How much debt do you really need to pay for this education? Can you work during college? Are scholarships available? Are you living as frugally as possible? Etc. Take out as little debt as you possibly can. 
  2. How are you going to repay the debt after college is over? How much debt will you have? How much will the monthly payment be? What is the expected salary for your major? Etc.

For those who are done with college and wish they could have asked these questions before starting, let’s look at some things you can do to make your student debt a little more manageable. 

[Note: the following suggestions were compiled by Maurie Backman from The Motley Fool with a little help from the research team at MoneyWise.]

1. Look into an income-based repayment plan

If you took out federal student loans within the last few years, the average loan payment is $351/month.  However, you can apply for income-based repayment plans, where that payment may be lowered to a rate that’s a more reasonable percentage of your income. To apply, you must submit an application called the Income-Driven Repayment Plan Request online at StudentLoans.gov or on a paper form, which you can get from your loan servicer.

2. Refinance your debt

Just as it's possible to refinance a mortgage, you can also refinance your student debt. Just know that there are trade-offs with every one of these decisions. Refinancing a loan means you may be able to get a lower rate and a different length of time, or term, in which to pay it off. This gives you more control on when you get out of debt while also helping you manage the monthly payments.  However, if you trade in your federal loan for a private loan, you lose the repayment-plan flexibility and the ability to switch between plans that I just mentioned. And, if you extend the term, even though you have a lower rate, you may end up paying more in the long run. 

Both federal and private student loans are eligible to be refinanced, but you need to have a excellent credit to qualify for a rate reduction.  If you haven’t yet established good credit, it might be worth holding off on refinancing until you do.

3. Get a second job

Working more than your main job may seem less than ideal, but if you keep the end in mind -- that of being out from under the burden of $40,000 in debt -- it’s easier to stomach.  Always remember that this is just a season in your life and it doesn’t have to last forever.  

4. Move back home

Making your student loan payments is tough when you’re also paying for rent, car payments, food, and utilities. But you can eliminate some of those bills if, with your parents’ permission, you move back home on a temporary basis.

Remember, though, that your relationship with your parents is not the same as the one you left when you went to college.  Now that you’re an adult, the temptation is for you to set your own course and your own rules for the way you live. If you’re moving back in with your parents, you have to set that aside for awhile as well. Their house? Their rules. 

Regardless of where you are, know that you aren’t alone.

Hopefully, these tips will give you some hope. There are people who can help and encourage you.For practical steps for repaying your debt, please take a look at this article: 

Michael Blue

Michael Blue serves as the Executive Director and General Counsel for the Ron Blue Institute for Financial Planning. Michael holds the following professional designations and degrees: Certified Financial Planner TM, Juris Doctorate from Baylor Law School, and Master of Theological Studies from Southwestern Baptist Theological Seminary. 

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