Figuring out how to pay for college isn't easy--ask most former students about their student loans, and you're likely to hear tales of frustration. At least that's the case for Mike Sullivan, Chief Education Officer of Take Charge America (www.takechargeamerica.org), a national nonprofit organization offering credit counseling, debt management and student loan counseling. "We're finding a lot of people who are contacting us because they are having trouble with their student loan repayments," he says. "Some simply can't make the payments because of budgetary constraints, and many others are realizing they still have years to go, and it's having a significant impact on their lives."
Beyond the large sums of money owed, part of the issue, says Sullivan, is that students are not well-versed in all of the repayment options available to them. If you're a prospective online college student needing college loan help, now is the time to take a crash course in loan repayment so that you can be better prepared to handle debt after graduating.
Here are 10 tips to simplify your student loan repayment.
Before You Borrow
1. Know the loan low down. Every young person should know the difference between government loans and private loans. Private ones do not offer the same terms or repayment options that federal loans do, says Sullivan. "The rule of thumb is borrow as little as you possibly can, yet we find that many borrow not just for school, but for all sorts of things," he says.
2. The amount you borrow should relate to the amount you expect to earn. If you're entering a low-paying career, you should try to find the lowest cost college possible, says Sullivan. Having said that, most people don't even know what career they're going to be pursuing when they start college, or they may change their majors. "You can't find much fault with M.D.'s who borrow $100k for medical school because it's probably a reasonable investment. But if you borrow $50k to get a degree in art history, there's an excellent chance you won't be able to repay it easily," he says. Along those lines, remember that financial aid and scholarships can help offset the cost of college, so be sure to factor those into your calculations.
3. Consider value colleges. If you research tuition and other fees, most likely you will be able to observe a substantial difference in costs involved while comparing one school to another, says Marilyn Stanley, Chief Operating Officer of Housing and Credit Counseling, Inc. of Kansas, a National Foundation for Credit Counseling Member Agency. "Going to school is a lifetime investment. Try to consider the full cost of your investment and what the return on that investment will be in the future," she says. Choosing a community college or technical school at a lower expense is a great option when considering the cost versus benefit for a future career. (See: How to Choose an Online College).
4. Understand what your monthly payoff amount will be and what it means. "We have seen so many people stunned when they meet with the financial aid officer and find out what their payments are going to be," says Sullivan. To avoid being surprised when you find out what your repayments will be, Sullivan suggests going to the government website, Studentaid.ed.gov, and using the repayment estimator tool. Once you do get a number, make sure you think about it in context. For instance, having to pay $600 a month toward student loans might mean not being able to afford a car payment, points out Sullivan, and you have to be OK with that.
5. Actually complete your program of study. Traditional and non-traditional students of various ages and walks of life appear to be acquiring high amounts of student loan debt, whether they complete only a portion of the required credit hours for a degree or finish a degree program, says Stanley. Sullivan adds, however, that the challenge to make payments can be far greater for those who do not finish a program of study. Individuals without a degree may not be qualified to earn a high enough income to pay back their debt. "Make sure when you borrow significant sums of money that you are committed to finishing the program," he says.
When You Leave School
6. Make a budget. If you're looking for college loan help after you graduate, you may want to start with a personal budgeting plan, says Stanley. Long-term and short-term goals are the motivator for sticking to a budget, and tracking your spending carefully can help you do this. Seek assistance, if necessary, but be confident in the fact that as consumers, you have choices with your money. "Would you rather be in charge of your money or let your money be in charge of you?" asks Stanley.
7. Know your payoff options. The goal with any debt is to pay it off as quickly as possible. "Understand it will cost you less if you pay it off quicker, and the standard 10-year plan is the quickest way to do it," says Sullivan. If you can add to those payments and shorten the life of the loan even more, go for it. If you do run into trouble making your payments, there are several options to consider, from a graduated repayment plan, in which you start off with lower payments that gradually increase over time, to an extended repayment plan, which lengthens the life of the loan to 25 years.
8. Consider short-term solutions first. Lowering your monthly payments will end up costing you more in the long run, says Sullivan, so make that a last resort. He suggests that rather than jumping into the extended payment option, go for a graduated plan or even a short-term deferment or forbearance until you regain some financial footing. "Whatever solution you choose, make sure it's based on the income you're likely to receive," he says.
9. Consolidate if you must, but still try to pay it off sooner. Graduates commonly have multiple student loans that all require a monthly minimum payment. Consolidating loans can help make finances more manageable and usually lowers the total amount of money to pay out each month, says Stanley. "This solution might be kinder to your monthly budget, considering you still have basic living expenses to cover," she says, but be aware that you'll pay more interest and give up the opportunity for potential benefits, such as qualifying for loan forgiveness.
10. Don't miss payments. Setting up an auto payment is a good option, assuming you are confident that your bank account balance will be able to cover the payment each month. "Missing student loan payments can affect your credit. You should at least set up some kind of reminder service or notification in your calendar so that you get an alert seven days before your payment is due," suggests Sullivan.
Then there are the folks who don't defer and simply ignore the payments during a time when they're struggling. "Don't be afraid to call your loan servicer to discuss your situation and options," says Stanley. Ultimately, they don't want you to be delinquent or to default on your loans. And they don't want to have to pursue advanced collection methods, which can be costly to them.
For a detailed breakdown of your online college student loan repayment options, visit StudentAid.ed.gov/repay-loans. To see learn more about college loans, see our ultimate guide on How to Get Loans for College.
1. Interview with Marilyn Stanley, Chief Operating Officer of Housing and Credit Counseling, Inc., conducted by Dawn Papandrea for OnlineColleges.com, June 2014
2. Interview with Mike Sullivan, Chief Education Officer of Take Charge America, conducted by Dawn Papandrea for OnlineColleges.com, June 2014
3. Repay Your Loans, U.S. Department of Education, Federal Student Aid, https://studentaid.ed.gov/repay-loans