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How College Graduates with Student Debt Can Efficiently Manage Repayment

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David Johnson is a recent graduate of the University of Ohio. Until he heads back to college to pursue his MBA, he is working to start his own personal finance blog.

Now that you have graduated from college, you will find that it is time to pay your student loans back. This is a crucial step in the student loan debt issue. With a high risk of default, it becomes extremely important for recent grads to manage their student loans effectively. Failure to do so leads to even bigger issues for both the individual as well as the rest of the country and taxpayers.

Tackling debt is going to get old, and most graduates are going to have to start with student loans. There are plenty of ways to approach student loan debt, but choosing the correct way is fairly important if you want to set the stage to a bright future. Here are several ways to limit student loan debt that may leave you in better shape for the future.

Refinancing Your Student Loans

Student loan refinancing essentially creates a new loan with a lowered interest rate, hence the term refinancing. Refinancing is available for both private student loans and federal student loans. In a nut shell, you can take all of your loans and lump them together under one new interest rate which depends on credit history. This leads to simplified loan repayments each month as well as money saved on interest.

When you refinance your student loans, the lender will pay off all of your loans and create a new single loan for you. This new loan will have a new interest rate, a new monthly payment, and the terms you chose. One of the good things about refinancing is that you can choose to shorten, extend, or keep your loan term the same.

If you are considering student loan refinancing, make sure that you explore whether or not you qualify to refinance your loans. Many private lenders have strict requirements, so most students will need a cosigner or guarantor to sign the loan with them. If all goes well, then you will find yourself with a much more manageable loan which makes it easier for you to save money for a retirement or emergency fund.

Consolidating Your Student Loans

If you are unable to refinance your student loans, you may want to think about federal student loan consolidation. Consolidation is somewhat similar to refinancing, but it does differ in some ways.

When it comes to consolidation, all of your student loans will be combined into a single loan, which means you do not have to send out multiple payments per month and your single monthly payment will be applied to your loan. You will have a single interest rate which is simply a weighted average of all your previous interest rates.

The biggest difference between consolidation and refinancing is that consolidation does not save any money over the life of a loan. This is due to the weighted average interest rate which does not actually help save any money, but the greatest benefit of consolidation is the simplification of your loan situation which is helpful.

Income-Driven Repayment Plans

If you are not able to refinance or consolidate your student loans, you may be able to apply for an income-driven repayment plan if you are having financial difficulties. There are four main income-driven repayment plans are:

  • Income-Contingent
  • Income-Based
  • Pay As You Earn
  • Revised Pay As You Earn

Each one of these plans is designed to help you manage your student loan debt more efficiently. For each of the plans, you will pay a fraction or percentage of your discretionary income (either 10% or 20%) each month. These payments continue for at least 20 to 25 years; afterwards, the remaining loan balance is forgiven.

Many students end up with low payments, so it is a solid option if you need to get your finances in order. These income-driven repayment plans are a great option for students who have a low income and financial difficulties, but they are often utilized by debtors from various financial situations.

Student Loan Forgiveness

Student loan forgiveness does exist, but it is not simply handed out to students because there are strict requirements. In some cases, your student loans may be forgiven if you can prove you are a victim of fraudulent for-profit college practices. Aside from this new reason, there are several programs that only pertain to certain career paths.

Some of the student loan forgiveness programs include the Public Service Loan Forgiveness Plan, the Nurse Corps Loan Forgiveness Plan, and the Teacher Loan Forgiveness Plan. Each one of these plans require you to serve a number of years within your chosen field. Meanwhile, you will need to make successful payments until being approved for forgiveness.

To receive student loan forgiveness, you will need to ensure you meet ALL of the requirements or you may be disqualified. In addition, pay attention to how much the plans forgive as some of them only forgive a portion of your student loan debt and not all of it. All in all, these programs can be extremely beneficial, but you have to get lucky in some cases. They are definitely not to be relied on as a first resort.

Final Thoughts

If you want to have a successful financial future, then you need to set yourself up for success. This means that you cannot take the backseat approach to your student loans. There are plenty of negatives to dropping the ball on student loans, so it is your best bet to approach them proactively. Doing so can lead to a much better stage for future milestones such as buying a house or saving for a wedding.

FYI:  I worked at a dead end cubicle job from 2005-2011 for about $30,000 per year.  I went self-employed in July 2011 and make between $70,000-$90,000 through blogging, professional pet sitting, hubby's reffing, and our rental home.  If you’d like to start your own site (link to my free step-by-step guide), I highly suggest checking out Bluehost (my referral link with a nice discount for you, PLUS a free custom header banner from me!).  Please contact me any time at budgetingfunstuff*at*gmail*dot*com with questions or just to brainstorm! I’d love to help!
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