If you borrowed money to finance your college education, you are in good company. According to data from FICO, the average student owes educational financiers $27,253; a figure which represents a 58% rise since 2005. The following tips will come in handy as you prepare to repay your student loan.
1. Keep your frugal student mindset
A recent study showed that most young people just starting on their careers spend most of their money on things they do not need. Considering that most college students had to live on a tight budget, it wouldn’t take a gargantuan effort to inject some frugality in how you spend money post-college. Remember that once you get used to a more expensive lifestyle, it’s hard to return to a more frugal one. Only allow yourself some luxuries when you are sure you can afford them.
2. Make the most of your retirement account
Make sure you join a retirement savings program as soon as you land a job. At the very least, fork out contributions to match what your employer is paying. A Roth Individual Retirement Account (IRA) is highly recommended seeing that it allows you to save for your retirement while providing the option of withdrawing the money in case of an emergency. A Roth IRA allows contributors to withdraw the sum of their contributions whenever they choose without penalties or taxes. Earnings on the account can also be withdrawn after five years of contributions and when the contributor attains 59 and 1/2 years of age.
3. Draw up a budget and stick to it
By drawing up a budget you can be sure you won’t go beyond your means when you spend. To ensure a balanced budget, begin by setting aside money for unseen emergencies, then save for short time objectives such as buying a home or for an annual holiday and then save for long-term goals such as retirement.
4. Mind your credit score
Maintaining a good credit score will help you get a car loan or mortgage on easy terms or even land you a new, better-paying job! To this end, always pay your debts and bills on time and never exceed 50 percent of any credit line at your disposal. You can also improve your credit score substantially by maintaining your older credit cards and thereby lengthening your credit history.
5. Join a PSLF public service program
Through the Public Service Loan Forgiveness (PSLF) program, you can get your outstanding student loan balance as well as the interest written off. To enjoy this benefit, you would have to join an eligible field of work in the public service, including AmeriCorps and Peace Corps. However, you need to have worked full-time in the public service program for at least 10 years and made 120 direct loan repayments to qualify for the PSLF provisions.
6) Never default on a loan repayment
Since student loans are treated like any other form of credit, missing a repayment will hit your credit score. Such defaults are arguably worse than missing mortgage payments or credit card bills. Since most student loans are owed to the government, they can withhold payments due to you such as salary (up to 15% of disposable income), tax refunds, social security and retirement payments. Both private and government lenders also have no time limit as to when they are able to sue you for default, unlike other forms of debt.
7) Ask for a deferment
Graduates who have yet to default on loan repayments can ask for a deferment of repayments for up to a year. You can quote a variety of circumstances ranging from poor health, transitional unemployement to family problems as valid reasons to explain why you are temporarily incapable of paying your dues. However, keep in mind that during the deferment period, interest on the loan will continue accruing.