Debt Management

Managing Your Debt, Managing Your Future

The average student graduates from college with student loan debt totaling $19,300. For those students who are already struggling to make ends meet, all is not lost. And for those students who have not yet accumulated any debt, it’s never too early to start budgeting.

Building a Budget

Where do I start?

Track your spending for a month or two in a log book.
Use the book to break income into fixed and flexible.
Categorize expenses in the same way.
Arrange income in one column and expenses in another.
Total the columns and compare them.

What does it mean?

If the calculation results in a negative number, it’s time to re-evaluate your spending practices.
Eliminate items beginning with variable expenses.
Keep going until the calculation results in a positive number.

How do I live on a budget?

Small efforts mean a lot.
Cut your coffee shop visits in half.
Don’t eat out so much.
Walk, ride your bike, car pool.
Take advantage of student discounts.
Put off large unnecessary purchases.

What next?

Start saving!
A standard rule is that everyone should have a minimum of three to six months’ wages in a savings account.
Don’t touch!
If you do borrow, replace it as soon as possible.

How do I identify my financial goals?

Make a list of things you want or need.
Prioritize them.
Be sure to consider all the surrounding factors. (For example, if you want to buy a car, consider the cost of gas, insurance, repairs, etc.)
Start working toward attaining them.

What about credit cards?

They can be an asset if used properly.
They help establish good credit rating.
They can be used in emergencies.
They are an alternate form of identification.
They can be used to hold hotel or plane reservations.

On the other hand…

Imprudent credit card use can result in bad credit rating.
They are an expensive way to borrow.
Credit cards make it easier to make impulsive, unnecessary purchases.

How can I use them responsibly?

Don’t get to the point where you can’t pay off your bill in full in a month or two.
Save up for expensive items and pay for them with cash!
Establish an “emergency use only” policy.

What if I get into trouble?

Start by paying down the cards that charge the most interest first.
Remember, all is not lost. You aren’t the first person to find yourself here!
Plenty of reputable debt counseling services are available.

What happens to my student loans after graduation?

Grace periods come to an end six months after you graduate and your loans go into repayment.
Deferments and forbearances are available to postpone payments for a specific period of time.

How do students loan deferments work?

Eligibility is based on specific, statutory requirements like unemployment, economic hardship and more.
Interest continues to accrue on unsubsidized loans during the deferment and it is the borrower’s responsibility.
Any unpaid interest will be capitalized at the end of the term.

How do student loan forbearances work?

They are granted at the discretion of the loan holder/servicer.
Interest continues to accrue during the forbearance.
That interest is capitalized at the end of the forbearance period.

What student loan repayment options are available to me?

Normal Repayment Options
- Standard — same monthly payment every month.
- Graduated — payments gradually increase for the first five years, then convert to a standard repayment.
- Income-Sensitive — based on your unique financial situation. (Check with your lender.)
Extended Repayment
- Offers smaller installment payments over an extended period of time.
- Available to borrowers whose loans originated on or after Oct. 7, 1998.
- Must have an outstanding balance of principal and interest in FFELP loans totaling more than $30,000.
- The maximum repayment period is 25 years.
- The amount paid in interest is increased due to the extended period of repayment.
Income Based Repayment

Payment based on income, family size and loan amount.
Debt and interest remaining after 25 years of payments will be forgiven.
Not available for Parent PLUS loans, consolidation loans that include Parent PLUS loans or private student loans.

Student Loan Consolidation
- The interest rate is a weighted average based on the current interest rate(s) of your loan(s) rounded to the nearest 1/8th of a percentage.
- Advantages include the simplicity of one loan, one lender and one monthly payment.
- Disadvantages include the fact you will pay more in interest because the loan is stretched over a longer period of time.

What does it mean when one defaults on a student loan?

Default is the failure of a borrower to repay his or her student loans.
The point at which a student loan is considered to be in default depends on the type of loan.

What are some of the pitfalls of defaulting on a student loan?

Involvement of collection agencies.
Possible garnishment of wages and tax refunds.
Negative mark on credit report.
Inability to obtain additional federal financial aid.
Potential for legal action.
Note: Student loans are generally not dischargeable through bankruptcy.

What is the best way to avoid defaulting on a student loan?

Maintain close contact with your lender.
Alert your lender of any changes in your financial situation that might affect your ability to make your student loan payments.
Depending on your unique circumstances, your lender might be able to help out by applying deferments or forbearances to your loan.
In addition, your lender might be able to offer other solutions such as extended repayment, consolidation and more.