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INSIGHT: Student debt

‎07-29-2014 09:54 AM

Student Loans

 

Mikel Van Cleve bylineThe cost of a college education continues to increase, and as a result many graduates are buckling under the weight of student loan burdens while trying to start careers and families.

 

Student debt is growing faster than other forms of credit as more people pursue college degrees and tuition price increases outpace inflation. As of the first quarter of 2014, U.S. student loan debt was at $1.11 trillion1. On top of that, recent grads are also much more likely to be unemployed or underemployed than other college-educated Americans2.

 

This should be a time of joy — not angst. Instead of letting the worry ruin your sleep, here are five steps to take control of your college debt.

 

  1. Make your student debt a priority.

Build the monthly loan amount into your budget. If money is tight, look for ways to cut back on spending such as packing a lunch versus eating out every day.

 

  1. If you’re struggling, get help.

Seek assistance before you dig a deeper debt hole. Contact your loan servicer immediately to discuss options, which could include reduced payments or deferment.

 

  1. Consider your repayment options.

Your loan servicer can review your repayment plan options with you. One of the options is the federal Pay As You Earn (PAYE) program. President Obama recently expanded the eligibility of PAYE to help alleviate student loan burdens and hardship. The program allows student borrowers to limit their federal student loan repayments to no more than 10 percent of their income. What’s more, public service employees (including active-duty military) — who have spent 10 years paying off their federal student loans — may have the remaining balance forgiven. Private-sector employees can have the debt forgiven after 20 years, assuming your account is in good standing.

 

Keep in mind: PAYE pertains only to certain federal loans in the student’s name. Private loans and education loans made to parents of students are not included. In addition, under current IRS rules, any forgiven loan balances could count as taxable income. For additional information on repaying your federal student loans you can watch the Department of Education’s video on how to manage loans or view their infographic on repayment plans.

 

  1. If eligible, contact your loan servicer to reduce your rate under the Servicemembers Civil Relief Act (SCRA)

This act caps the interest rate at 6 percent for private and federal student loan debt incurred by service members prior to active duty. The president has directed the Department of Education to automatically cap the interest rate through its loan servicers.

 

  1. Consider consolidation

Consolidate your student loans into a single payment. When working with the loan servicer to consolidate, be sure you have clarity about not only the amount of the monthly payment, but also interest and fees included. Also, take time to understand the entire cost of the loan. The longer the loan term (the time it takes to pay off the loan) the more likely it is that you will pay more in interest. Keep in mind: With consolidation, you could lose some benefits that were part of the initial loan, such as interest rate discounts or principal rebates.

 

USAA can help you consolidate private student loans. For more information, search “student loans” on usaa.com. We also can help you create a budget and prioritize spending using USAA Money Manager . The stakes are high, failure to properly manage your debt — including student loan payments – can result in legal action and put your credit reputation at risk. A low credit score could come back to haunt you when you’re trying to reach other financial goals, such as buying a home or vehicle. It could also factor into employment opportunities or your security clearance. For more back to school coverage, follow this link.

 

graphic

Student Loan Delinquency is highest among consumer loan types

 

Percent of 90+ days Delinquent by Loan Type

 

Student loans:   11%

Credit Card:   8.5%

Mortgage:   3.7%

Auto:   3.3%

HE revolving: 3.4%

 

* First quarter 2014, www.newyorkfed.org

 

 

 

 

1New York Fed Quarterly Report on Household Debt and Credit: http://www.newyorkfed.org/householdcredit/2014-q1/data/pdf/HHDC_2014Q1.pdf

 

2 Federal Reserve Bank of New York, “Are Recent College Graduates Finding Good Jobs?” Current Issues in Economics and Finance, Vol. 20, No. 1, 2014.

 

208373 - 0714

 

Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and CERTIFIED FINANCIAL PLANNER™ in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

 

USAA Money Manager is not an investment advisory service of USAA.

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Comments
by AUXILIARY ‎07-30-2014 05:29 PM

Advice worth considering by all persons with loans and comtemplating studen loans.

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