Everything you need to know about student loans and how to deal with them

First of all, I would just like to say that like many others, I would not have been able to afford college without loans. I went to a moderately priced college, worked part-time throughout the entirety of my undergraduate education, and graduated in the “expected” 4 years.

Sure, I didn’t apply for many scholarships before heading off to college, and the money I made while working went mostly to textbooks and bar tabs- but why does it feel like I made so many poor decisions to bring me to my student loans and the payments I make each month.

Just about any student loan payment is too much in my eyes. If you’re lucky enough to put some in your savings each month while still making your payments, it’s probably tear-worthy looking at the thousands you’ll pay in interest over the next 5-20 years. If you’re aggressive with your payments (like I fooled myself into thinking I was), it may look like you’re putting a good chunk of change down on every month’s payments, but how much of that is really going towards your loan?

So the real question is, what do we do about it? How can we make our payments more manageable without screwing our credit scores and living at home forever? After a year of paying off debt that never seemed to lessen, I’m ready to find an answer that’s actually realistic and manageable for a millennial.

1.) Analyze your current situation.

This is probably the worst and I’ve shed more than a few tears over this, but it’s important to see what you’re actually working with. Take a look at your loans- all of them. For me, some are private (hate you Sallie Mae) and some are federal. This is a cool tool to see how much debt you have compared to others in your field, geographic area, and even from your school. I was shocked to see my average monthly payments were 5X my school’s average. This is not normal and not okay!

2.) Look at your credit score.

Credit score, who cares? You may not be buying a car or house, but your credit score has a lot of influence over options available for you and your student loans. Credit scores mean so much but take so much time and effort to build. Whether you simply haven’t had credit or debit cards for years or you missed a payment or two when you were 19, your credit score stays with you and determines all kinds of financial options available to you throughout your lifetime. The good news is, if your credit score isn’t great, well here are the average scores by age according to Credit Karma, so you’re likely not alone. Bad news, it doesn’t change a whole lot regarding your options. If you have a parent, spouse, or guardian who is willing to cosign a refinance option with you, that can help give you better banks to finance with and lower interest rates.

3.) Lay out your options.

There are a few options available with student loans, depending on how much money you make, how much in student loan debt you carry, your credit score, and how much you can simply afford to pay.

A.) Refinance

B.) Lender payback options

C.) Forbearance

D.) Delinquency

E.) Default

Or basically continue doing what you’re doing, which for many of us, just simply isn’t possible.

Refinancing is a fancy term for switching your loans to a different lender. There are a lot of different stipulations around refinancing and a lot of factors that influence your options. If you’re considering refinancing, here is a great tool you can use to see if you prequalify with any lenders and what your rates could potentially look like.

Benefit: You can lower your interest rate and often times lower your monthly payments. You can also consolidate loans if you have a few, so instead of paying 5 loan payments/mo, you pay just one. For some, you can also have a cosigner to increase your chances of better interest rates. Additionally, if you have student loans in your parents’ names or with cosigners from when they were first dispersed, you can move everything into your name.

Drawback: You need relatively good credit to qualify for a lot of refinancing. I looked into this option after I received my very first month of student loans because they were simply too high to pay. I didn’t qualify for any repayment options at that point because I didn’t have the credit I needed or a history of making payments on time.

Lender payment options will vary amongst loan providers. If you have Sallie Mae like me, there are a few options, none of which are ideal. When I first got my loan payments, they were so insanely high, I couldn’t live and pay them. I called Sallie Mae’s customer service line to talk to a representative about what my options were. At that time, they told me I could request forbearance (we’re getting there- two more paragraphs), or I could have my monthly payments lowered but pay a few thousand dollars more in total debt. I’m not sure what they called it but at the time, this option seemed best. Tacking on another couple thousand just to make my current payments more bearable seemed like the right choice.

There are some other options for payback depending on your provider. Some lenders allow you to adjust your payments based on your income. If you’re not making a lot, this can be a good option. For others who want lower payments but also some comfortable room to save, this may not be the best route for you. Call your lender’s customer service line and ask what repayment options are available for you.

Benefit: This can make your monthly payments less.

Drawbacks: This usually ends up costing you more in the long run.

Forbearance is an option I wouldn’t recommend but can be appropriate for some people. This option gives you the opportunity to push off your loan payments for a period of time. If you can’t make payments and don’t qualify for refinancing or lowering your payments through lender options, this may be what you need to do. You basically have to pay a fee upfront and agree to the forbearance which gets recorded on your credit report. You also build up more interest on your loans, even while you’re not making payments.

Benefit: You don’t have to pay your loans off for a period of time.

Drawback: Your loans continue to build up interest while you’re not paying them, you have to pay fees upfront that may not go towards your loans, and your eligibility for other repayment plans with your lender may be stripped after your forbearance period (for Sallie Mae, you can do it for 3-12 mo.)

Delinquency and default are both things you want to avoid pretty much at all costs. There are a lot of spiraling results that will negatively affect you if you go into delinquency or default. Delinquency is when you simply fail to make a payment or partial payment. This causes lenders to put fees and penalties on your account which hurts your credit score and makes you super unattractive to other lenders, not just for student loans (think credit cards, renting an apartment, car loans…). Then, default is when you stop making payments altogether. Not only do you then get late fees, but your entire loan balance becomes due. It goes into collection and stays (negatively, obviously) on your credit score for up to 7 years. Holy ouch. So don’t be late on payments and look for other options before giving up completely.

No benefits. Simply, don’t do it.

So what does this all mean? Well, it means hopefully you have a place to start. For me, that’s educating myself on how to increase my credit score, how to budget my funds wisely (seriously, I love working from coffee shops and buying clothes but that stuff adds up quickly), and asking for help/doing your research. I need to refinance my loans, and a lot goes into choosing a lender to refinance with. Some have lower rates than others, some have terrible customer service reviews, some I don’t qualify for at all because of my credit score, and others I have to consider things like if I want to potentially have a cosigner apply with me.

Some things to generally know that I’ve learned in my student loan experience:

1.) A lot of lenders will lower your interest rates if you set up your account with autopay. This means the loans will automatically come out of your bank account on your payment day each month, but lower interest rates mean more savings for you in the long run (this is usually around .25% per loan).

2.) Variable interest rates suck. I chose variable interest rates when I applied for loans throughout college because 1.) they appeared to be lower at the time than many of the fixed rates, and 2.) interest rates were historically low. It should’ve been a “duhhh” to myself that there’s nowhere but up from here for interest rates, but I, unfortunately, did not make that decision. My interest rates on my loans went from 7-11% (7% is high, so 11% is hundreds of dollars more per month than the first option) which has seriously hurt my bank account. I wouldn’t recommend choosing variable rates. I would stick with fixed rates, pay them while you can, and refinance in a few years to get lower rates. Just my two cents.

3.) Don’t take things as they appear. If you have a question about your loans, call customer service. I know waiting on hold is less than desirable, but often times, those people can answer questions you may have. I didn’t even know I had variable rates until I called in and said, WTH, why these bills so high? They explained it to me and it immediately made me more informed and equipped to make better decisions down the line.

4.) Take a serious look at interest rates. I do not mean this lightly. The amount of interest you pay might be insane (like mine). As I’ve been looking into refinancing, I’ve begun to realize just how crazy my interest was, even before it recently hiked up. If you can manage to pay a little bit more now, you’ll save so much in the long run. For example, paying off my loans in 5 years vs. 15 years could save me over $28,000 (and that’s with a good interest rate. A bad one could cost me over $70,000 stretched out). Look at your interest and see what your options are to lower it.

Part 2 of this blog will have more to come. I’ll share with you my experiences refinancing, tips on how to budget your money, and why all of this matters. Ever heard of NIMBY? It stands for Not In My Back Yard AKA I don’t care about things influencing others and causing issues until it directly effects me. Sad to say it but student loans are totally my NIMBY. Until my payments we’re insane and the economy affected my interest rates, it was all out of sight out of mind. Do yourself a favor and care about things.

For additional resources and other great articles on student loans, rates, and more, check out BankRate.

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