Many people who have finished college in the last decade have student loan debt, but some have found that repaying that debt is more complicated than they expected it to be. There are many resources for student loan borrowers trying to figure out repayment, and some go to financial planners for advice on how to manage their student loan debt as a part of a broader financial strategy that will carry them into retirement.
1. Not Knowing Repayment Options
Borrowers with federal student loans have many options for making their payments more affordable. Ara Oghoorian is a financial planner in California who specializes in working with health care professionals, meaning many of his clients have six-figure student loan debt balances.
A common question his clients ask is about loan repayment options, because even if they have high salaries, they may still struggle to afford loan payments in addition to their other expenses. Understanding how loan repayment options apply to your specific situation can be difficult.
"Sometimes they're extremely well informed, but other ti mes they just know the terms, they . . . need to know how it work s," Oghoorian said about his clients.
If you're challenged by the loan payments you're required to make each month, look into things like income-based repayment, pay-as-you earn and public service student loan forgiveness. Do your own research, but ask an expert if you're not sure how these things work or if your loans qualify.
Oftentimes, a person's student loan debt comprises several individual loans, and even if you make one monthly payment to a single loan servicer, the payment is divided among multiple loans. If you want to focus on a particular loan, it can be challenging to communicate that to your servicer.
"One thing that's really common is people try to pay extra on their student loans, but it just goes toward future payments," said Sophia Bera, a financial planner in New York. "If you write a letter and send that in with your student loan payment, you can specify which student loan you'd like to pay off."
Bera said she sometimes gets on the phone with her clients and their loan servicers to make sure the instructions are clear, but it's also crucial to follow up in writing.
Many borrowers have complained about difficulty working with their servicers — the Consumer Financial Protection Bureau accepts loan servicer complaints, and President Barack Obama recently issued a directive to the Department of Education to make sure it's easier for borrowers to manage loan repayment. Keeping good records and diligently maintaining communication with your servicer is crucial to managing your debt.
3. Balancing Loan Payments & Savings
Oghoorian said he reminds his clients that the large amount of debt they have was an investment in themselves, and they have to look at the interest rates on their debt and compare it to returns they can get on other investments.
"When you're paying debt, whatever you pay additional, you're earning that interest rate, and you have to look if you can do better than that," he said.
Borrowers often don't know exactly what they're paying, which is why Bera tells her clients to know the specifics of their loans, like interest rates and repayment schedule, so they can fit loan repayment into their grand financial plan.
Take advantage of 401(k)s and employer benefits, Bera said, while also putting enough away in savings to handle necessary bills in case of an emergency.
4. Too Much Debt
One of the most common problems borrowers encounter when starting to repay the loans they took out for their education is they have too much debt. The obvious solution is to not borrow excessively in the first place, but that doesn't do a graduate any good (future graduates, take note).
Scot Hanson, a financial planner in Minnesota, said he often encounters parents of graduates who want to help their kids who are struggling with unaffordable debt, but that's not always a good strategy — for the parents or the kids. He knows this from experience, because he's helping his own daughters with the unaffordable debt they took on. He does what he can without sacrificing his savings.
"Sometimes they want to help their kids so bad, but you help your kids by taking care of yourself," Hanson said. "You're in no position to be bailing them out because your retirement plan is marginal at best anyway."
Graduates having trouble with federal student loans should explore their repayment options, but the bottom line is student loan debt is generally not dischargeable in bankruptcy, so making payments is a must. There are some refinancing options for student loan borrowers, and you typically need good credit to qualify for them (if you want to know where you stand, you can see two of your credit scores for free on Credit.com). Finding a way to make those debt payments manageable, as well as adjusting expenses as much as possible to accommodate them, can be the best way to tackle the problem of too much debt.
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