Student
Loans
A straight forward guide to
managing your student loans.
Management Starts Early
A college education is part of the American dream. Unfortunately, for most
Americans, it’s one part of the dream that is very expensive to achieve. This
year, nearly 20 million Americans will attend college and graduate with an
average student loan debt of $26,600. For most, this debt will affect many
future financial decisions – buying a house, starting a family, planning for
retirement, etc. That is why it is so important when considering borrowing
for college, which 60% of attendees do, that you do your homework
beforehand. Managing your student loans must start before you apply for
your first loan.
How much student loan debt you think you will acquire by the time you graduate? If you are planning on becoming
a professional like a doctor, you may need to borrow in excess of $100,000. Far too many people borrow for their
education without considering the long term costs of the loan and whether or not they can afford to pay back the
money. Before you decide to proceed with taking out student loans, make sure you have mapped out your future earning potential and
you have plans in place to pay them back. What will be your monthly payments on the loans? How long will you be paying
them back (generally 120 payments/months or 10 years)? Will you have the monthly income to be able to sustain
these payments? A good rule is to keep your monthly payments to no more than 8% of your estimated gross
income after graduation.
How can you know how much money you can expect to make after graduation? This website from the Bureau of
Labor Statistics has the information you need: www.bls.gov/bls/blswage.htm.
How do you determine the future payments on your student loans? Use these calculators from the U.S. Department
of Education to answer that question: www.direct.ed.gov/calc.html.
It is important to understand all the terms of the loan and the repayment conditions before you borrow - student
loans are nearly impossible to discharge in bankruptcy.
Where can you cut costs? Many colleges will allow you to get college credit for courses or exams that you might
have taken as part of a job, or you may be able to test out of subjects you already know. See if you qualify for any
income based fee waiver programs. Ask about reciprocity and exchange programs with other colleges outside your
state to see if you can get in-state tuition. Finally, going to a community college might be a great way to save money
on the first two years of an undergraduate degree. The bottom line, the less you borrow, the less you will need to
pay back when your college education is finished.
Federal loans are backed by the government and usually offer lower interest rates and have more flexible repayment
options than loans from banks or other private sources. In addition, private loans are typically more expensive and
do not have the many consumer protections that federal student loans offer. A good piece of advice is to get a
federal student loan before you apply for a private one.
2
Create a Spending Plan
Managing your student loans is just one part of a good financial plan. You
need to look at your entire financial picture. A good place to start is by
looking at your expenses and debts and then measuring them against your
income.
Your Goal
Your primary objective is to pay off your loan(s) or higher interest consumer debt in the least amount of time while
paying the least amount in interest. By keeping this focus in mind, you will save money over the long run and get
out from under your debt on schedule. Student loan debt often influences many other financial decisions - buying a
house, starting a family, and planning for retirement. In addition, making on time payments and reducing your debt
will benefit your credit score.
Your Spending Plan
A spending plan is a step by step process that will help to ensure that your bills are paid on time and that your
expenses are prioritized to help you reach your financial goals. This should be set up as soon as you secure income
so that you will be on the right track from the very beginning.
Income
Only use income you can count on – overtime and bonuses should be used to pay down your student loan or higher
interest consumer debt. If you work on commission, take the total amount that you made last year after taxes, divide
that by 12 and use that amount as your monthly income. During the months that you make more than that, put that
amount in a special account so it will be there on the months that you are short.
Track Spending
A good exercise to see where your money is going is to track your spending for the next 30 days. The stop at
the convenience store, coffee shop, or eating out could be taking a big chunk out of your paycheck without you
realizing it.
3
Create a Spending Plan
Expenses
There are three types of expenses – fixed, flexible, and periodic.
• Fixed expenses – Rent, mortgage, student loan payments, car payments, etc. These are items for which you pay
the same amount every month. Anything that you can get fixed within your spending plan will only help you
manage your money better. Consider putting your utilities on a level payment plan. That way you don’t have
to struggle with higher bills in the summer or winter. Food and entertainment needs to be a fixed expense.
Those are the two areas where you often spend more than what you think.
• Flexible expenses – Gasoline, cable bills, utility bills, etc. These things you pay every month but they might not
be the same amount. The total of all your flexible expenses should not fluctuate more than $25 a month.
• Periodic expenses – Car repair, gifts, insurance, etc. These things you do not need to pay for every month, so
it is important to have a special account to cover these expenses when they come up. Do not leave this money
in your checking account; chances are it won’t be there when you need it. To figure out how much you need
to save, total the amount you expect to spend on that item and divide by 12. For example, you estimate that
renewing your car tags will cost you $600 a year, divide that by 12 and you can see that you need to save $50 a
month for that expense. Do this for all of your periodic expenses. If your calculation indicates that the total
each month that needs to be saved for periodic expenses is more than your income will allow, put as much as
you can into a savings account that is dedicated to periodic expenses.
Making it Balance
On a worksheet, list all of your expenses. Keep in mind, all income coming into the household should be accounted
for. It’s not enough to say, “I’ve paid all my bills, and I can do what I want with the rest.” If you have income left
over, it should be used to pay down your student loan, higher interest consumer debt or added to savings. After you
get everything listed, you might find that you don’t have enough income to cover your expenses. There are only two
things you can do – increase income or decrease expenses. Start by prioritizing your expenses and look for ways to
cut back. Evaluate your needs and your wants and make adjustments accordingly.
Your spending plan is a work-in-progress and can change frequently as your income and living situations change,
but your spending plan is essential to reaching your financial goals.
4
Paying Back Your Loans
As soon as you stop attending college, the clock starts ticking on your
student loans. Your first bill will arrive sooner than you expect. Getting
organized before that bill arrives in the mail will get you off to a good start
and could save you money.
Know What You Owe
It is important to know who you owe and how much you owe them. Write down balances, payment amounts, due
dates and interest rates of all your consumer debts – student loans, credit cards, car payments. In regards to your
student loans, review your contracts. It is important to know all the terms and conditions so that you understand
what is expected of you.
Pay Down Your Debt as Fast as Possible
Once you make a list of your consumer debts, create a plan to pay them off faster. Focus on the debts with the
highest interest rate first. If you have private and federal loans with similar interest rates, you will want to pay off
the private ones first, as they tend to have higher interest rates and more severe penalties if you default. Use your
spending plan to determine how much extra you can apply toward your student loans. Make minimum monthly
payments to the accounts with the lowest interest rates, while applying any additional funds toward the account with
the higher interest rate. Once that account is paid off, apply the payment you were making on that account to the
next account with the highest interest rate. When making extra payments on your student loans, contact your lender
to be certain that the additional funds are being applied toward the principal.
Your First Payment
Direct Loans and Stafford Loans have a six-month grace period before payments are due. Consider making loan
payments before this grace period ends. This will allow you to begin paying off your loans sooner. PLUS loans do
not have a grace period, as repayment is expected once they are fully disbursed. You may be eligible for a deferment,
so contact your loan servicer for more information. Terms and conditions of a Perkins Loans are determined by the
school where you received your loan. If unsure about the grace period, contact them.
Standard Repayment Plans
This is the plan that most students use to repay their loans. There is a fixed payment for 120 months or ten years.
Making on time payments will improve your credit history and that will allow you to pursue other financial goals
and obtain future loans at the best available interest rates.
Public Service Loan Forgiveness (PSLF) Program
If you decide to work in public service, you may qualify for the PSLF program. Enacted by Congress in 2007, this
program forgives the balance of your federally-funded loans after you have successfully made 120 payments—that’s
only 10 YEARS! (Your employer must become approved to be in the program.) You must be on the income-based
repayment plan, showing that your income is not within the guidelines to support a standard payment. This will be
beneficial to your monthly budget as well as provide you relief knowing your student-loan debt will eventually have
an ending. (Check with a professional, as you may be responsible for paying taxes on the forgiven amount.) PSLF
is an amazing opportunity to serve others while ensuring the stability of your future. Plan in advance! For more
information, visit the Federal Student Aid website: http://studentaid.ed.gov/.
5
Paying Back Your Loans
Other Repayment Plans
Other federal loans have specific repayment plans. A great site to use as a resource when reviewing student loan
repayment plans is: http://studentaid.ed.gov/repay-loans/understand/plans.
Student Loan Consolidation
If you have multiple student loans, you might consider consolidating them into a single student loan. Loan
consolidation may reduce your monthly payments, will extend your payments over a longer period of time, and can
help you to better manage your loans by simplifying the repayment process.
Keep in mind that in the end, you will be paying more in interest due to the longer length of the loan. You may also
lose some repayment benefits provided by your loan provider.
If you can afford the payments without extending your loan, don’t be tempted by the lower monthly payments. Be
careful when dealing with companies that offer to consolidate your loans for a fee. Consolidating your federal loans does not cost anything.
You can find out more about student loan consolidation at: http://studentaid.ed.gov/repay-loans/consolidation.
6
When Trouble Strikes
Most students start college with big dreams: taking classes to prepare you for
the next phase of your life; graduating and landing the perfect career; earning
an income that allows you to provide for yourself and your family. But what
happens when those dreams become nightmares? What if the career that is
perfect for you does not pay well—or maybe there are no jobs in your field?
According to The Project on Student Loan Debt, “Two-thirds of college
seniors who graduated in 2011 had student loan debt, with an average of
$26,600 per borrower. Meanwhile, unemployment for college graduates
remained high at 8.8 percent.” Couple that with the fact that the cost of
attaining a degree has risen more than 1,000 percent in the last three decades!
Certainly, most student loan borrowers are not thinking about defaulting on their loans, but…life happens.
With most federally funded loans, repayment begins six to nine months after you withdraw from school, drop below
full-time status, or graduate. So what happens when repayment is simply not an option? After falling behind by nine
months, you will be in default on your loan. Before you consider defaulting, you need to investigate other options.
If your debts outweigh your income, there are only two ways to resolve this dilemma: Increase your income or
decrease your expenses.
Ways to increase your income:
• Obtain a second job, maybe nights, weekends, or seasonal. Just be sure that working a second job is not
costing you more money for gas, food, daycare, etc.
• Start your own business or barter your services.
• Sell “stuff ” you have lying around the house.
Ways to decrease your expenses:
• Prioritize your expenses.
• Identify your needs vs. wants, and only get things you really need.
• Write everything down. You can be amazed at what you are spending and not realizing it.
• Look at each of your monthly bills. Can you reduce or eliminate some of the expenses? Reduce internet
speed, eliminate cable or land line phones.
• Monitor your cell phone charges, and consider reducing your plan.
• Carry cash if you can not control the use of your debit card.
• Use coupons.
• Ask for cash discounts.
• Consolidate trips.
• Use community resources.
• Cut back on eating out and other entertainment expenses.
• Check with your employer to see if you have discounts with area merchants.
• Do your homework before you go out shopping. (Know where the best deals are.)
7
When Trouble Strikes
• Ask for the best-price on all purchases.
• Use direct deposit. You will be less likely to spend money if it goes straight into your account, especially your
savings account.
• Don’t use credit to supplement income you do not have.
Student Loan Repayment Options
Make sure you investigate the types of repayment-plan options before you decide to take other steps. These
alternatives are based on your income, family size, and financial hardship. Three types of optional repayment plans
include:
• Income-Based
• Graduated
• Pay-As-You-Earn
For more information on these repayment plans you can go to http://studentaid.ed.gov/repay-loans/understand/
plans.
Other Options
If you cannot increase your income or decrease your expenses, cannot get approved for a better repayment plan, or
you just cannot make the payments, there are other options to consider:
• Debt Management Plan: If you have unsecured debt, such as credit cards and medical bills, you may be
eligible to enroll in a Debt Management Plan (DMP). A DMP helps you regain control of your finances while
paying down your debt in a timely manner. NOTE: Student loan debt cannot be included in a DMP. With
your new financial plan in place, you may have enough in your spending plan to make payments toward your
student loans. Before enrolling in any repayment program, research the credentials of the agency you are
planning to use. You should never have to pay a fee up-front to receive financial counseling.
• Deferment: On federally-funded subsidized loans, the principal and interest are temporarily delayed, and your
payments are postponed. On unsubsidized loans, unpaid interest still accrues on your loan. You may qualify
for a deferment if you are unemployed, returning to school, or suffering an economic hardship. On private
loans, know your options in advance of taking out the loan. Terms and conditions may differ. For detailed
information, visit: http://studentaid.ed.gov/repay-loans/deferment-forbearance.
• Forbearance: If you don’t qualify for a deferment, you can speak with your loan servicing agency about
forbearance. If you are granted a forbearance, you will still accrue interest—regardless of the type of loan—
but you may be able to stop making payments for up to a year. For detailed information, visit the website
above.
• Debt Settlement: Check with your private loan servicers. You can ask if they will settle for a lower amount
than the balance. Often, this is done with either a one time lump-sum payment or with larger payments over a
shorter period of time. (This is usually beneficial if you have a low balance and a healthy chunk to pay toward
it.) SCAM ALERT: Be wary of student loan rescue companies. Chances are you can get the same options on your
own without the need of assistance. Do not pay for what you can do yourself.
8
When Trouble Strikes
Loan Default
Even if you do not graduate, are not happy with your school, or cannot find a job, you are still responsible
for repaying your loans. If you do not make payments on your federal loans for 270-360 days, or make special
repayment arrangements, your loans will go into default. Read the fine-print on private loans, as they have their
own policies in place for default.
Remember: You are still responsible for repaying the full amount even if you default! Default should be a last
resort. Some consequences of default include:
• Your loans may be turned over to a collection agency.
• You’ll be liable for the costs associated with collecting your loan, including court costs and attorney fees.
• You can be sued for the entire amount of your loan.
• Your wages may be garnished.
• Your federal and state income tax refunds may be intercepted.
• The federal government may withhold part of your Social Security benefit payments.
• Your defaulted loans will appear on your credit history, making it difficult for you to obtain an auto loan,
mortgage, or even credit cards.
• You won’t receive any more federal financial aid until you repay the loan in full or make arrangements to
repay what you already owe and make at least six consecutive, on-time, monthly payments. (You will also be
ineligible for assistance under most federal benefit programs.)
• You’ll be ineligible for deferments.
• Subsidized interest benefits will be denied.
• You may not be able to renew a professional license you hold.
• You may be prohibited from enlisting in the Armed Forces.
Even if you default, there’s hope. Your federal loans may be rehabilitated. This is still not a favorable option, as your
monthly payment may be more than it was before defaulting, collection costs may be added to your principle, and
delinquencies reported before default will not be removed from your credit report. ALERT: If you are asked to co-sign
for a student loan, remember that you are responsible for their loans if they default.
Bankruptcy
Since 2005, an amendment enacted by the Bankruptcy Abuse Prevention and Consumer Protection Act made it
extremely difficult to file bankruptcy on any private student loan. (It’s been this way for federally funded loans since
1978—mostly to safeguard taxpayer money.) Due to the lack of bankruptcy protections, private lenders carry little
risk because they are almost guaranteed to get some form of payment from you. Many serve as the guarantor and
the collection agency. Although it’s not impossible to file bankruptcy on student loans, it is difficult. The debtor
must file an adversary proceeding in conjunction with the bankruptcy. One must prove undue hardship, and the
stipulations vary from jurisdiction-to-jurisdiction, prove that the school was not credible, or the borrower has a total
and permanent disability.
New legislation is being introduced to reverse some of the private student loan bankruptcy rules. Just as individuals
can file bankruptcy on their vehicles, homes, credit cards, and gambling debts, The Fairness for Struggling Students
Act of 2013’s legislation would allow these loans to be dischargeable in court. The Department of Education
established an ombudsman (an official who represents your interests) to help those who are considering bankruptcy.
For more information, visit: http://studentaid.ed.gov/repay-loans/disputes/prepare.
9
Useful Student Loan Links
ORGANIZATION
LINK
DESCRIPTION
Federal Student Aid: An office
of the US Department of
Education
http://studentaid.ed.gov
Largest provider of student financial
aid in the nation; responsible for
managing these programs; FAQs
about student aid and paying it back.
Federal Student Aid
http://studentaid.ed.gov/repayloans/understand/plans
Student loan repayment matrix.
National Student Loan Data
System (NSLDS)
http://www.nslds.ed.gov/nslds_SA/
The U.S. Department of Education’s
central database for student aid.
U.S. Department of Education’s
Federal Student Aid
Ombudsman
Apprisen
800.355.2227
www.apprisen.com
http://www.ombudsman.ed.gov/
For borrowers who experience
problems or disputes with their
federal student loan lenders or
repayment servicers.