Managing US Student Loan Debt While in School

College graduation is a joyous occasion, but it can also be saddened by the burden of student loan debt.

This debt is a reality for a  majority of graduates, and repaying can feel challenging. 

Student loan debt in Canada has reached a staggering $1.4 trillion.

This translates to an average of $37,172 owed by each graduate in the Class of 2016.

While student loans can be seen as an investment in your future, they can also lead to credit card debt and create a significant financial burden.

Budgeting for Repayment

Budgeting is a skill for managing any debt, and student loans are no exception. The first step is to track your income from all sources, including your job, financial aid, and any help from your parents.

Next, list your fixed expenses like rent, utilities, and phone bills. Finally, calculate your disposable income – the money you have left for discretionary spending.

Creating a detailed budget helps you identify areas where you can cut back. Here are some tips for reducing your disposable spending:

Maintain a frugal lifestyle: Continue living with roommates to share rent and utilities.

Prioritize needs over wants: Invest in work-appropriate clothes but avoid unnecessary shopping sprees.

Embrace home cooking: Eating out regularly can drain your budget. Learn to cook affordable meals.

Utilize alternative transportation: Consider carpooling, public transportation, or even walking to save on gas and car expenses.

Seek out free entertainment: Explore free activities like spending time outdoors, visiting museums on free admission days, or hanging out with friends.

Developing a Repayment Plan

Effective debt management requires a strategic plan. Here are some key steps to get you started:

1. Utilize the grace period: Don’t wait for repayment to begin after graduation. Start making payments during the grace period offered by most lenders. This helps you get ahead of interest accrual and establish a payment habit.
2. Understand your loans: Research your loans to understand the interest rates, repayment plans, and lenders involved. The National Student Loan Data System can help you find this information.
3. Explore repayment options: Federal loans offer various repayment plans based on your income. Consider income-based repayment, loan consolidation, or deferment if you face temporary financial hardship.
4. Increase your income: Look for ways to boost your income. This could involve asking for a raise, taking on a side hustle, or utilizing your skills for freelance work.
5. Maximize tax benefits: You may be able to deduct up to $2,500 of student loan interest paid each year on your taxes.
6. Seek loan forgiveness opportunities: Certain professions, such as teaching or working in underserved communities, may offer student loan forgiveness programs after a set number of years of service.
7. Automate payments: Enroll in automatic debit to avoid late fees and ensure timely payments. This can also qualify you for a lower interest rate with some lenders.
8. Avoid further debt: Resist the urge to take on additional debt like credit cards or car loans while you’re managing your student loans.

Avoiding Default

Defaulting on your student loans should be avoided at all costs. Defaulting occurs when you miss payments for an extended period (typically 270 days or nine months). The consequences are severe:

• Wage garnishment: The government can garnish up to 15% of your wages and Social Security benefits to recover unpaid loans.
• Damaged credit score: Late or missed payments will appear on your credit report for up to seven years, hindering your ability to secure loans or credit cards in the future.
• Increased debt: Defaulting results in additional fees and penalties, making the debt even more expensive.

If you’re struggling to make payments, contact your loan servicer immediately. They can help you explore alternative repayment options like deferment or forbearance to prevent default.

Options Available for Managing Student Loan Debt

There are resources available to help you navigate student loan repayment. These include:

• The Department of Education: They offer information on repayment plans, consolidation options, and more.
• Debt consolidation companies: These companies can combine multiple loans into one, simplifying your repayment process and potentially reducing your interest rate.
• Debt settlement companies: These companies negotiate with your lenders to reduce your debt amount in exchange for a lump sum payment.
• Professional credit counselors: Credit counseling agencies can provide personalized advice and support to help you manage your student loans effectively.