Steps to Avoid the Game of Loans

Accepted the one word your family has been anticipating to hear for several months. After looking at the second page of the acceptance letter you start seeing the thousands of dollars due for just one semester. Thousands of questions race through your head like buzzing bees. Did we take all the steps necessary to help our child succeed? Did I save enough? Do I need to take out a loan? Will I be able to pay off the loan in four years?

In 2014, the Credit Bureau Experian reported 40 million Americans had at least one outstanding student loan. On average, borrowers have around four student loans each with an average balance of $29,000. Since 2008, the balance for these loans has increased by five thousand dollars. According to U.S. News, 17 percent of borrowers have fallen behind resulting in the nation’s $1.2 trillion owed in college loans.

However, there are a few ways you can start preparing for those fees. Several banks including Suncoast Credit Union offer several resources such as CU Succeed which covers topics such as paying for college, budgeting, and information on using credit cards. Suncoast’s newsletter also contains content about investing, trends, and tips on how to save money.

• Practical Money Skills for Life offers free advice for becoming better at money management. It’s a great resource for educators, parents and students to begin down a positive path of smart saving. This site also provides advice on how students can start their job search preparing them for life after graduation.
• The Road to Financial Independence: A Guide for 20-Somethings is full of valuable advice about money management, renting your first apartment, to buying a car and everything in between.

How to save:

• Every penny counts. Try to set aside money even if it’s a few dollars a day. After a year those few dollars will add up to a lot of money that can be used to pay off loans.
• Make goals. In order to budget it is best to set short-term and long-term goals.
• Start early. The earlier you start saving the longer your money will stay in your savings and in turn it will collect interest.
• Only borrow what you know you can pay back. Don’t take out more than you need, as you will end up owing more. Know the exact amount you need to take out and calculate how much you can easily attribute. The goal is to owe less on your loans then what your starting salary would be. By checking sites such as PayScale parents can lean what the starting pay is for your child’s dream job. Deduct the amount you are earning from any part-time jobs, scholarships, and grants. All of these factors should be deducted before loans come into play because it is money you can easily pay back.
• Know how long you have to pay off loans. By being prepared you will have less to worry about when graduation rolls around as most loans make students repay everything once the student graduates.
• Try cooking more. As tempting as it is to go out to eat all the time, cooking can save students a lot of money. Think about purchasing a lower cost meal plan or opting out to making your own meals. Face it; by the end of the week most students if they have a meal plan where they eat fifteen meals a week, most likely they will end up wasting the extra meals.
• Remember saving doesn’t mean you have to be a stickler with your money. Reserve one day a week as a “cheat day” where you can plan on going out but it never hurts to save a few dollars by bringing coupons or using apps that help you save.
• As a first time loan user ask others for advice. Seek guidance from recent graduates, parents, and the financial aid office.

But what happens after graduation if your graduate hasn’t found a job and time’s up.

Betsy Mayotte, a director of regulatory compliance at Saltmoney.org, an organization that authored “60+ ways to get rid of your student loans (without paying them)” offers some advice on paying student loans.

“When we counsel people, what we get all the time is that people don’t know all these options exist, these lower payments, these programs,” Mayotte says. “They think it’s either you pay (your student loans), or you get in trouble. And it’s just not like that.” Mayotte mentions there are many jobs that are eligible for loan forgiveness including public sector and humanitarian positions.

The student loan forgiveness program offers five options for repayment.

• The first is a Standard Payment which allows the borrower to pay a fix amount each month for life on the loan. The amount you would pay is determined by the borrowed amount, interest rate, and term of the loan.
• Another option is called a Graduated Repayment, meaning the borrower would make lower payments until they graduate. After graduation the payments would increase every two years.
• The third option is called an Income Contingent in which the borrower would make payments passed on their income, loan balance, interest rate, and family size.
• The fourth option called Income Based Repayment bases payments on the income and family size. With this option the loan and interest rate are not calculated into the monthly payment resulting in the borrower being responsible for paying 15% of their income as a monthly payment.
• The last option Pay As You Earn has the lowest monthly payment and uses 10% of their income as payment. This option however is harder to qualify for.

What if I have a remaining balance after the end of my term? For Income Contingent, Income Based, or Pay As You Earn repayment plans, your loan balance would be forgiven at the end of the term. The downside is that it takes 25 years of making consecutive payments for the remaining amount to be forgiven. However, Mayotte warns borrowers shouldn’t take jobs just to have their loans forgiven, or take out too much debt. Many of the programs are budget based so there’s a possibility that funds could disappear by the time your child graduates.

The post Steps to Avoid the Game of Loans appeared first on Tampa Bay Parenting.