A Mountain of Debt: The Truth About Student Loans

The rising cost of tuition, housing, food and books has made student loans more prevalent in today’s society. In fact, according to Nellie Mae’s 2002 National Student Loan Survey, over 70% of students say that student loans were very or extremely important in allowing them access to education after high school. That same survey found the average undergraduate debt is $18,900. Students attending graduate school increase their debt even further to a whopping $31,700. And lawyers and medical students suffer from the most debt at $91,700. So it’s no surprise that the National Association for College Admission Counseling (NACAC) and the Project on Student Debt found that 63% of parents of current college students say students today graduate with too much debt. So what happens when your son or daughter graduates and you’re both faced with all that debt? How do you keep yourself or your children from defaulting on loans?

Pay the Piper
If your children are taking out student loans to supplement the amount you’re able to provide, they may want to consider paying some of it off while they’re still attending college. It may sound difficult, but even if they can make small payments, they’ll help bring down the total amount of debt they’ll be facing come graduation day. If they have difficulty finding a high-paying job after graduation, they could pursue a deferment of their student loans. This allows students to push off repayment for a few years, but keep in mind that interest will likely continue to accrue. The other alternative is to lower payments by extending the term of the loan, which may also result in additional interest. Like credit cards, you’ll want to recommend that your children pay more than the minimum payment whenever possible. This helps bring down the total cost of interest on the loan by shortening the term. Of course, all of this depends on your financial situation and to what extent you are contributing to the cost of their schooling.

Consolidation Nation
It is likely that students will have to take out multiple loans to pay for college and that results in a several different student loan bills after graduation. Keeping track of all of the loans can prove difficult, so you might want to talk to your kids about consolidation. Consolidating loans is not only a convenient way for repayment, it may also help lower payments. Depending on when your kids took out their student loans their interest rate may be higher than the current rate. By consolidating at a lower rate they can bring down the interest on the loans, which would then affect the size of the monthly or quarterly payment. Of course, this is a strategy you can consider as well if you decide to go with loans, like the federal PLUS loan program. Also, if you own a home, you may have the option of using equity in your home to help your child pay for college. There are advantages and disadvantages to both federal loans and home equity loans. Talk with financial professional for more information.

Forgiving Your Debt
There are a few ways the federal government helps minimize or eliminate student loan debt. The first method is to have the student in debt work in impoverished areas. This is an option often available for graduates in occupations like law and medicine. If their interested, have your kids check with the school’s career office for more information on these special programs. Another way to have debt forgiven is to perform volunteer work through organizations like AmeriCorps. Students can also have their debt significantly paid down by joining the military. For example, the U.S. Navy will pay for up to $65,000 of qualified loans acquired for a post-secondary education.

Budgeting Yourself
Once your kids are out of school and inundated with student loans budgeting becomes a major commitment. Now that they have their share of college debt they’ll want to consider any way they can save money, including lifestyle changes like sharing an apartment or biking to work. They should also avoid accumulating additional debt through the use of credit cards. Another crucial tip is to never miss a payment, since it can result in late fees and damage their credit rating. Talk with them about being responsible for their debt situation and contact the loan company if they fall on difficult times. And always remind them that although the thought of accruing debt can seem overwhelming, student loans give them the opportunity to attend college and secure their dream job…Hopefully, that makes