FINANCE
The Student Loan Bubble: Toil or Trouble
By April M. Oliver CFP® CERTIFIED FINANCIAL
PLANNER™
As if our financial system hasn’t suffered enough — or caused enough suffering — economists worry that more difficulties lie ahead in the student lending sector. Students, parents and lenders alike are stressed by ris- ing tuition costs, mounting debt and a weak job market. Will the student loan bubble burst
under the pressure? For recent college graduates who borrowed heav- ily, these issues may hit very close to home. Federal loan repayment kicks in a mere six to nine months after graduation. Loan default, which can damage your credit report, makes it difficult to purchase a home, get a job or even find affordable insurance, is a very real possibility for many young people. If you’re a new college grad and facing your first loan repayment deadline -- or have a child in this situa- tion -- here are some strategies that can help, even in tough times like these.
Gather the facts To meet your debt obligations, you need to know
how much you owe and when it’s due. Open your mail and read your loan agreements. While the numbers may be intimidating, they can also inspire action. Armed with concrete information, you can determine how much income you need to meet your monthly bills and focus your energies on tackling the challenge. If you have questions or have missed
a deadline, contact your lender immediately.
Explore your repayment options Before your grace period ends, familiarize yourself with the repayment plans offered on your federal student loans. With a standard repayment plan, you are expected to repay your loans with equal monthly payments over a 10-year period. Under special circumstances, you may qualify to extend the re- payment period up to 25 years or make payments that increase over time as your income increases. Income-based repayment is a newer option that caps your payment based on your income and family size. Under this plan, you may pay less than 10 percent of your income, and if you still owe after making payments for 25 years, your balance may be wiped clean.
Keep it simple When you set up your repayment plan, opt for auto-
mated monthly loan payments. It’s a convenient ser- vice — you can be confident your payments will be made on time and avoid the temptation of spending the money elsewhere. Most importantly, you may be eligible for an interest rate reduction when you sign up for automatic debit. Ask your lender about auto- matic debit benefits.
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