Are you afraid of your college debt?
“Ask Brianna” is a NerdWallet column aimed at 20-year-olds or anyone just starting out. I’m here to help you manage your money, find a job, and pay off student loans – all the real world things nobody taught us to do in college. Send your questions about postgraduate life to [email protected]
Student loans aren’t scary like a roller coaster – an adrenaline rush and a silly souvenir photo to capture the moment. No, student loans are scary because they change the way you see your future. They scare you that you will never have a home, an unforgettable vacation, or a secure retirement.
It’s understandable that you should avoid looking at something that gives you nightmares.
But just as exposure therapy can help people who are afraid of snakes, for example, you have to face your student loans if you want to break free from their grip. This fear will go away once you make a plan to lower your bills and say goodbye to debt.
STEP 1: FIND OUT WHERE YOU STAND
According to the Federal Reserve, a fifth of people with student debt were behind on their payments in 2017. You’re far from alone if you’re overwhelmed. To overcome your fears, face what you owe, to whom you owe it, and when.
Go to the National Student Loans Data System, click on “Financial Aid Review” and create or enter your Federal Student Aid username and password. On the next screen, you will see a list of Federal Student Loans under your name. Click on the loan number in the far left column to view details. You will see the total amount remaining to be refunded as well as the name and website of the company collecting your invoice, known as the service agent.
Next, check your credit report for private student loans. You can access a report from each of the three major credit bureaus each year at annualcreditreport.com, or you can use a free online credit reporting service. In the accounts section, student loans will likely be listed as installment loans. Take note of the company that holds the loan and the balance.
This is the hardest part. And now it’s over.
STEP 2: TAKE CONTROL OF YOUR INVOICES
While you need to know your overall student loan balance to build a strategic repayment plan, your total monthly bill is the most important number. Don’t know how much you paid each bank or managing agent? Log on to their online portals to find out. While you’re at it, also write down the interest rate on your loans.
At this point, make a list of loans that includes the company you are paying, whether the loan is federal or private, how much you owe per month, how much you owe overall, and the interest rate. Rank the loans by interest rate, highest on top.
This is what you are working with. Now compare your total monthly payment with your take-home pay. Are you earning enough to cover not only your loans, but also the essentials like your accommodation and food costs? Do you have anything left for retirement or emergency savings?
If the answer is “no” to one or both, reducing your loan bill is your priority now.
STEP 3: TAKE ACTION
To give you more leeway, you have several options:
– Sign up for an income-based repayment plan. For federal loans, this limits your loan bill to a percentage of your income and will free up the money you need in other parts of your life.
– Call your lender. Your ability to pay less for private loans depends on the policies of individual lenders. Ask for lower payments or interest only for a while.
– Avoid prolonged patience. While postponing your payments might seem like a good idea, book it for short stays – like a month when you have a big medical bill to pay. If you can’t afford your loans for the foreseeable future, choose a more permanent strategy.
If you have a month or more of expenses saved up for emergencies and are able to contribute up to the employer’s match on your 401 (k), you can tear these loans apart. Pay off the highest interest loans first to save as much money as possible. Or refinance, if you have good credit or a co-signer; you may be able to get a lower interest rate, especially on higher interest private loans, which will help you pay off your loans faster.
This article was provided to The Associated Press by the NerdWallet personal finance website. Brianna McGurran is a writer at NerdWallet. Email: [email protected] Twitter: @briannamcscribe.
Federal Student Aid: National Student Loans Data System
NerdWallet: How To Pay Off Student Loans Quickly