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5 Student Loan Repayment Strategies Worth Considering

Student Loan DebtWith the exorbitant cost of secondary education continuing to move higher and higher, many students have no choice but to take on significant loan obligations in order to finance their education.  Unfortunately, student loans can leave graduates economically crippled for many years – but only if they are improperly managed. If you do need to borrow to underwrite your education, it’s important that you have a repayment plan in place long before you even start the repayment process.

Your repayment planning should go above and beyond the simple anticipation that you’ll be able to get a job and somehow be able to make your loan payments.  Given the amount of financial obligation the typical student has — which generally adds up to 10s of thousands of dollars — it’s essential to think about ALL of your potential options in order to handle your post-graduation obligations.

Here are 5 student loan debt repayment strategies worth considering:

  1. Consolidating Multiple Loans – Many students take out loans from multiple sources, consisting of government student loan programs, lines of credit and loans from banks and other traditional lending institutions. Handling specific payments can be time-consuming, complicated and pricey, so if you have more than one loan to settle, consolidation can simplify the process. With loan consolidation, you essentially get another loan, wrapping all of your existing loan obligations into a single loan. You’ll be accountable to just a single lender, pay a lower overall effective interest rate, not to mention less time and hassle required to deal with just a single lender.
  2. Invest in Appreciable Assets  – As counter-intuitive as it might sound, investing in appreciable assets with a portion of your student loan funding might be another strategy to consider.  Most students wouldn’t even consider utilizing a portion of their loan funding to invest, but if you have the capacity, you can come out ahead when you finish school by using some of your student loan money to invest in hard assets, like real estate, that are likely to appreciate in value while you’re in school.  Buying a rental home and then living in the house as you go to school is an approach worth considering.  More than likely, you will need to enlist the help of your parents (and their income and credit rating) to seriously consider this as an option. As far-fetched as it might sound, it is a strategy that’s been used very effectively to provide housing stability, financial benefits as well as fixed housing expenses for certain students.
  3. Get Familiar with Your Repayment Options – There are four different types of repayment schedules for student borrowers:  standard, extended, graduated and income-dependent. A standard repayment schedule requires fixed payment amounts over a specified time period. Graduated repayments start in lower amounts in the beginning of the schedule and graduate to higher payments over time. Extended repayment is similar to standard repayment, except that they are spread over a longer period, resulting in lower monthly payments but more total interest charges over the life of the loan.  Income-dependent repayment scheduling ties repayment amounts to your overall income and normally come with longer loan amortization durations.  What’s most important to understand about repayment options is that you may qualify to switch plans if you’re having a difficult time meeting your monthly payment obligations.  Talk to your lender directly about the requirements for modifying your repayment plan.
  4. The Military Option – Joining the military, during school or after you graduate, is another legitimate option to consider.   Over and above the significant benefit that service to country has brought to countless individuals, military service will qualify you for payment postponements, deferments or, in certain instances, even debt forgiveness. The Consumer Financial Protection Bureau (CFPB) provides an outstanding resource guide for service members with student loans on how to lower your interest rates and manage your debt burden.
  5. Deferment and Forbearance – As a final option, you might consider deferring your student loan repayments.  If deferment is the route that you choose, it’s important to remember that you’ll continue to incur finance charges while your loan payments are deferred; all a deferment does is purchase you time to get your financial act together.  As an absolute last resort, you may consider applying for loan forbearance status, but you’ll only qualify for forbearance if you meet specific income and loan obligation criteria.  More importantly, in the eyes of creditors, forbearance is very similar to declaring bankruptcy and will have a sharply negative impact on your credit rating and ability to borrow after you graduate.  Make sure that you only consider forbearance when all other options have been exhausted.

If you proactively manage your student loan obligations, you can save yourself a ton of money in finance charges, shield your credit rating from harm and preserve your ability to borrow in the near future.  Whether it’s a down payment on a house, a car or seed capital to start a new business, preserving your credit rating is critical to give you more financial options to choose from when opportunities present themselves in the near future.

Above all, keep in mind that your student loans are a financial investment in yourself and a financial investment in your future, and managing the repayment of those obligations is not to be taken lightly.

 

 

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