commencement marks a new beginning for graduates: a new job, perhaps a new
location, and a new standard of living that doesn't include Ramen noodles and
But graduation also brings with it a new responsibility: repaying student loans. According to a survey by Nellie Mae (New England Educational Loan Marketing Corp.) in Braintree, Mass., the average debt for all student loan borrowers is $18,800. Plus, undergraduates leave college with around $1,900 in "unofficial" school loans they took out on their credit cards; graduate students average almost $5,000 in credit card debt.
The one-two punch of student loans and credit card debt can take the wind out of new grads' sails. But if they explore the payment options available and adopt a lifestyle that accommodates their debts, they can set a steady course for financial freedom.
and credit cards
go hand in hand.
According to Nellie Mae, 60% of college students finance their education at least partially through loans. Yet as common as student loans have become, many borrowers experience sticker shock when the bills come due. "Students and their parents get into a daze," says Anne Stockwell, author of "The Guerrilla Guide to Mastering Student Loan Debt" (ISBN 0-06-273435-0). "The numbers being tossed around$20,000, $30,000, $40,000sound academic. Only when the students graduate does reality set in."
That reality arrives in the form of a monthly payment that can rival a car payment in size. And its arrival occurs just as the true cost of living is sinking in.
"These students are in a transitional period where they've just moved out on their own and suddenly have adult expensesrent, transportation, foodthey might not have been fully responsible for in college," says Diane Saunders, vice president of public affairs for Nellie Mae. "Their paycheck doesn't go as far as they might have anticipated."
The debt burden can prove overwhelming. Once borrowers miss a few payments, they may be afraid to ask for help. But the problems will only mount if they let their student loan slide toward delinquency and default. And default can scar a person's credit record for years.
"People don't like to admit they're having financial difficulties," says Patricia Scherschel, director of public relations for USA Group Inc. in Indianapolis, the nation's largest student loan guarantor and administrator. "But we can't help you if you don't wave the white flag. If you let us know, we can help you change payment options and make sure you're doing something that makes sense for you."
How can you cut the cost of repaying your student loan? The USA Group offers these tips:
There are other options. The graduated repayment plan reschedules the debt so that payments start out lower and gradually increase over a 10-year span. Long-term repayment plans extend the loan anywhere from 12 years to 30 years. And income-based repayment sets payment according to your income. However, all of these options increase your total interest costs.
Never be afraid
to call your lender
student loan debt
Student loans and credit cards go hand in hand. According to Nellie Mae, undergraduates carry an average of three and a half credit cards; graduate students carry six cards. Whatever school expenses student loans don't cover often are paid for with a credit card.
"How you handle one always affects the other," Stockwell says. "But while you have to pay your student loan, you can choose the relationship you have with credit. You can be smart about picking the credit deals you make."
In addition to checking with your credit union for a card, Stockwell suggests you:
Credit cards usually carry a higher interest rate than student loans. If you find yourself with a windfall, pay off your credit card balance first. Also, consider using a debit card instead of a credit card, Stockwell says. It not only limits your spending but frees up your credit card for true emergencies that may require more balance than you currently have.
Rules to live by|
You don't necessarily have to take an oath of monastic poverty in order to pay off your debts. However, you do need to set a lifestyle that accommodates, rather than ignores, the financial realities.
"The key is not to set your standard of living based on what your salary is right when you get out of college," says James Poer, who graduated from Texas Christian University, Fort Worth, in 1994 with almost $30,000 in student loans. "A lot of people think, 'I have this amount of money a month,' so they get a new car, a new apartment, run up the credit cards. When it comes time to start shelling out $200 to $500 a month for student loans, it kills them. They have to make sure they work it into their budget now to pay for the loans later."
Contrary to rumor, there's no escaping student loan repayment. Even bankruptcy doesn't wipe out an outstanding student loan. So in facing the inevitable, remember that there always is help. Nellie Mae's Web site has interactive calculators to help you manage your payments. Consumer Credit Counseling Services can help you establish a budget and prioritize debts. Call your lender if you have questions or concerns. Stockwell also suggests having a student loan buddy, maybe someone from your class you can commiserate with when there's too much month at the end of the money.
Things may be tight for awhile. You may have to take a second job, drive a used car, and sacrifice your tax refunds. But have hope. The USA Group found that, despite the fact today's students have a heftier debt load, they're doing a better job repaying their educational loans. As you pay down those debts, you're working your way toward your own financial freedom.
"They can't take your education back, so use it," says Stockwell. "That's the best revenge."
Sixty percent of
finance their education
at least partially
|Student Loan Stats
|©1999 Credit Union National Association Inc.|