How to Pay Back Student Debt

How to Pay Back Student Debt

Once you complete your higher education and find a job, paying back student debt becomes a necessary evil. The good thing about student debt repayment is that it teaches you how to manage your money meticulously. However, on the darker side, if the student debt is not paid back, your credit rating is adversely affected. Negative credit rating makes you misfit for credit cards, loans and mortgages. Therefore, student debt repayment is essential. Nevertheless, paying back student debt is an intricate task that requires lots of planning and judicious management of funds. Here is a foolproof plan that will help you to decipher the student debt repayment jargon with ease.
Step 1 Calculate student debt

For paying back the student debt, you should precisely know how much debt you owe. To ascertain this, you would have to make a list of all the student loans that you have taken. These days many types of loans are available for students. There are some student loans that are allocated only to parents like Parent Loans for Undergraduate Students (PLUS). You don't have to worry about these kinds of loans because they are your parent's responsibility. Everything else is your burden. Therefore, get hold of all the contracts, reminders and notices pertaining to student loans and make a list of the kinds of loans you have taken.

With the list, you can do two things; one, calculate how much you owe in total and second, identify all your lenders. While calculating the total, don't forget to seclude the grants and scholarships. Student grants such as Supplemental Education Opportunity Grant, Pell Grant, etc. and scholarships are not paid back.

Besides the total student debt, you should also know who your lenders are. Often, instead of managing your loan demand, your bank may assign the task to Student Loan Marketing Association, which in its turn may ask a local loan provider to do the needful. All this is done without your permission, but you are informed about each transfer. Scan through all the notices to find out who your lenders are.

Step 2 Some Student Loan Repayment Options

After completing your education, you get six months grace period during which you don't have to pay back anything. You should use this time to find a respectable job for yourself. Thereafter, you can use any one of the following payment options to pay back your student debt. 1. Standard Payment Option- If you have landed with a good job, then this is the best payment option for you. Although the monthly installments are high, but you get the best interest rate and you pay back your debt in 10 years.

2. Graduated Payment Option- This is a good payment option, if you intend to make a modest beginning, and then gradually climb up to the top. The monthly installments are quite low initially, but they gradually scale up with time. With this option, you would be able to write off your student debt in 20 to 25 years.

3. Income-Based Payment Option- If your income vacillates, then go for this option. It allows you pay back your debt according to your income. However, you get only 15 years pay back period.

4. Long-Term Payment Option- In this option, you would have to pay a small amount of money each month for up to 30 years. This option sounds good, but do take a closer look. After 30 years, you probably end up paying twice the original loan amount.

Step 3 Ways to Delay Your Student Debt Repayment

There are three ways by which you can holdup student debt repayment for sometime. 1. Consolidation- Where you take a large loan to payoff all the smaller loans. For instance, to payoff three student loans, you shell out $900 each month. If you consolidate all the three loans, then you would have to pay only $300 per month. On downside, you would have to bear higher interest rates and it would also take longer for you to clear your debt.

2. Deferment- If your financial liabilities are making it difficult for you to repay your student debt, then this option is the best for you. You just have to fill out a simple form and the government will step in to take care of the piling interest.

3. Forbearance- By opting for this option, you can forget about student debt repayment for three months. However, only a genuine reason can make you eligible for forbearance.

Step 4 A Few Wise Words

The earlier you get out of the dark and dingy student debt tunnel, the better it is for your financial health. In addition to the above repayment options, there is yet another way to escape from the tentacles of student debt unhurt. It is called debt forgiveness. You can volunteer to participate in some public interest programs and win debt forgiveness. For instance, you can volunteer to teach in a school meant for children of low-income families for one year under the condition that your student debt will be completely wiped out.