By: George Woodring | Staff Accountant
According to a study performed by Bloomberg, U.S. student loan debt outstanding reached a record $1.465 trillion in November 2018. As state support for public universities continues to stagnate or be reduced, tuition prices will continue to rise as universities are guaranteed to be paid either one of two ways: Students will write the check or participate in government-backed student loans. As we approach the 2020 election, various plans are being proposed to address the student loan bubble. These proposals range from strengthening income-based repayment plans or allowing loans to be refinanced to lower or 0% interest rates, all the way to total forgiveness of student loans. However, considering the state of debate in Washington, this problem is not going to be solved tomorrow. For the time being, those with student loan debt are on their own.
Paying Debt Quicker
Still, there are many ways to make your student loan debt more manageable. A popular option lately is private loan consolidation with companies like SoFi and CommonBond. Programs through these companies allow for consolidation of both government and private student loans into a loan with one single monthly payment. Borrowers can select either a variable or fixed rate, and the rate is based on your credit history, degree, job status and future employment prospects. If you do not consolidate, focus on making at least the monthly minimum payment due for each loan, and paying additional money towards your loans with the highest interest rates first to reduce the overall outstanding principal. Whether that’s $20 extra per month or $200 extra per month, every dollar helps. Create a budget and see what miscellaneous expenses you can do without. Getting back on track or ahead of your student loan balance will reduce the total in fees and interest that is paid back. Student loan debt also affects your credit score, so while paying off the debt improves your score, ignoring it or falling behind will harm your score. The sooner you pay back your student loan debt, the sooner you can save money towards a nice vacation, a new car, or a house.
Avoiding Future Debt
For those of us with students in high school or just beginning college, it seems like high student debt is something that is inevitable. That is not necessarily true. Talk with your student about in-state colleges that are much cheaper. Many schools offer scholarships based upon a combination of standardized test scores and GPA, and there are numerous scholarships provided by outside organizations students can apply for. This upcoming summer is a good time for a part-time job that can create a nice savings amount for the student. Encourage your student to save part of their allowance towards college. Complete the Free Application for Federal Student Aid (FAFSA) every year to be eligible not only for federal loans, but for federal grants as well. Grants do not have to be paid back. Internships performed during college are a great way to test drive careers while earning money for tuition. With so many extracurricular costs that are part of the full “college experience”, it is nearly impossible to graduate without any debt. However, any little bit that reduces the outstanding debt at graduation helps.