Monday, January 7, 2013

Dealing with student loans

I made the first payment on my student loan today. It wasn't exactly pleasant. It's officially the 3rd biggest expense of our monthly budget after our mortgage and childcare. Despite owning nearly as much in student loans as I owe on my home (and at least that earns equity...), my payments are manageable. Student loans are an aspect of life after grad school that most of us dread coping with, but in my experience (and from others), they're not nearly as awful as you might expect. I highly recommend that you start figuring out loan stuff now (during the grace period) rather than leave it until the last minute. Avoiding looking at the bottom line won't make it any smaller, and there are steps you can take now to make life less miserable.

Caroline Roberts @ Postacademic has a lot of excellent, accessible advice about handling the "wild world of student loans." The comments have great advice, too. Here is my non-professional, but BTDT, advice on getting ready to tackle student loans. And do plan to tackle them: even if all you do is make arrangements to not have to pay them yet, you need to take action on your loans to avoid default. You can't bankrupt your way out of student loans. They must be faced head-on. Here are the steps I think make sense for most people to get started.


1. Find out what kind of loans you took out, how much you owe, and who you will repay.

Hey, now is not a time to lecture you on private versus federal loans if you already took the damn things out. Right now, you just need to know how much you owe, who to pay, and the options available for that kind of loan. You'll have to play your cards as they lie, and I won't judge you, but I do feel sorry for you if you took out private loans because I hear they're a bitch to repay. I guess private companies are much less flexible and much less reasonable about repayment, in the same way credit card companies can be (because they're usually the same people).

I only have federal student loan debt to deal with. is the place to start because it explains everything very simply. Then, you'll probably head to to set up accounts and such. Sometimes it can take time to set up accounts, find your old PIN, update ancient addresses from undergrad days, etc. So expect it to take a little time to get to the point where you can simply access your own information. Once you've done all that, you can easily see how much you owe (look at the number. LOOK AT IT.), how much your repayment will be, and when it will start. You get six months from the time they figure out you're not in school anymore. This should also direct you to whomever you'll be repaying (Direct Loans, Ed Financial, etc).

2. Learn about deferment and forbearance.

If you're just starting on the quitting journey, you may have no idea what your income will look like in 6 months. You may have landed a job that will make monthly payments in the range of hundreds of dollars absolutely no problem. Or you may still be in that "just for now" job bagging groceries, which means you can afford something but not as much as they may want. Or you may still be up shit creek -- dealing with health problems, or persistently unemployed, or whatever -- and not be able to make payments at all. The link above has a great chart that tells you the circumstances under which you can defer/forebear loans, and for how long. (e.g., you can defer some loans for up to 3 years if you are unemployed.) There are also circumstances in which you can have your loan forgiven or discharged (these involve many years of public service, or permanent disability, etc). Know your options!

3. Learn about different payment options.

Again, the charts in the link above make this simple to interpret. Unless you apply for a different repayment plan, you'll automatically be set up for the "standard repayment plan." This usually means fairly large payments for a shorter period of time (10 years) and that's good because you pay it off sooner and accrue less interest. But if you're like me (ahem) and made many catastrophically bad financial decisions in grad school, you won't be able to pay the standard amount. In that case, consider the graduated repayment plans, or the relatively new and very very wonderful Income-Based Repayment plans. Basically, IBR bases your payment on your income and family size, and adjusts the payment every year. This is a good thing. This is the plan I am using, and my payments still hurt but they are manageable. (I will combine Income-Based Repayment with the Public Service Loan Forgiveness plan and have the remainder of my loan discharged after 10 years).

Go ahead and apply for IBR if you think it sounds good. Remember, you can always pay more if you want, or adjust the plan later on. For now, you need a payment option that's workable with your life as it is today.

4. Look into loan consolidation.

If you're like many students, you've probably taken out multiple loans across multiple years, possibly at different interest rates or even from different organizations. This can mean that when you sit down to start paying back your loans after you leave, you may be looking at having to make multiple payments per month (maybe even to separate companies), which may add up to a total amount that is totally overwhelming.

Before you fall into a total panic, try to figure out if you might be able to consolidate your loans by clicking the link above and starting the application. Of course, consolidation can't reduce the total pot of money you owe. However, it can make your monthly payments (and sometimes your interest rates) significantly lower.

In JC's case, consolidating student loans literally cut her monthly payment in half. She's still going to be paying those bad boys back for waaaaay longer than she'd like, of course ...  but saving a few hundred dollars every single month definitely makes the payments more manageable.

So a few months before your first payment is due, try filling out the consolidation app. There are calculators that can help you get a ballpark idea about whether you'd benefit from consolidation ... and even if you fill out the application and change your mind at the end, you have a month or so before the consolidation goes into effect where you can cancel and change your mind.

So once you gather your list of the loans you owe, play around with the calculators and the consolidation app. It can really help your monthly budget.

5. Set up autopayments if you can.

Late payments can affect your credit score, and you don't want to screw up your qualification for things like PSLF, so setting up automatic debits for student loans is a smart move. For some people whose income fluctuates a lot week to week (e.g. freelancers), this option may not be great (you certainly don't want to overdraft!) but you have to be diligent about timely payments if you don't set up auto-debit. I suck at things like that, so I have autodebits for our loans. These can take over a month to clear with your bank, so do it in advance (I just learned this the hard way, ouch).

If you get confused, call them. They're really very pleasant. The government will work with you. They just want some of this fucking money paid back!

As an aside: you might be really concerned that the amount of your student loans will mean you can never buy a house or a car. This isn't necessarily true. We purchased our home and a car while repaying my husband's student loans. (Note from JC: so did we!) It probably depends on your bank and other aspects of your financial life, but we found that our bank was more interested in whether or not we could afford the monthly payments for all of our commitments than they were in the total amount of our overall debt. You can always ask. They can always say no... but at least you'd know!

I think we have this sense of deep shame about debt and therefore avoid talking about it, but that's not productive. Certainly, I regret my student loans, but I'm dealing with them like an adult -- and like millions of other Americans. If we hadn't asked, we would be paying more money for a shitty rental than we are now for our wonderful home that we own. If we hadn't asked, we'd be freaking about making payments on my student loan rather than making a prompt and affordable payment. Facing my debt has been a big part of the growing up I've done since quitting grad school. I wish I'd done it much earlier. Regardless: it's manageable. Don't fear Sallie Mae!

1 comment:

Note: Only a member of this blog may post a comment.