Contributor: Kristen Fricks-Roman
Company: Morgan Stanley Wealth Management
Title: Financial Advisor
Nearly 43 million Americans currently owe almost $1.3 trillion in student loan debt. In 2016, 7 in 10 college seniors who graduated this spring will carry an average of more than $37,000 in record-breaking debt. With diplomas in hand, today’s graduates will not only face a rigorous job hunt, but also the first payments of their student loans.
While it can seem daunting and challenging, I’ve seen many college grads successfully pay down student loan debt without it becoming financially debilitating. Here are some strategies to help boost your repayment process.
Paying Down Your Student Loan Debt
Have a budget. Manage your everyday expenses and limit your credit card purchases so you can be most effective in allotting cash toward your student loan payments. As you’ve heard many times: live within your means and save.
Look closely at your payback options based on type of loan. Federal loans offer various repayment options and protections. Assess each one and figure out what will suit you best. Options include:
- Standard repayment. This takes the form of a pre-stated period, generally 10 years, where the loan is repaid in equal amounts over the term.
- Graduated repayments are generally a 10-year plan that starts out lower than the standard option and increases gradually until payoff.
- Income-based repayments are typically available to borrowers who can demonstrate a partial financial hardship. In this case, repayments are capped at 15 percent of income and repayments can be extended to as much as 25 years.
- Income-contingent repayment plans also require a partial financial hardship. Repayment amounts take in factors of adjusted gross income, discretionary income and family size.
If you received your loan from a private lender, you might be able to negotiate a lower interest rate. It’s not a guarantee, but could be worth a shot.
Steer Clear of Default. Deciding not to repay your student loan is a serious financial faux pas with major consequences. It will affect everything from your credit score, to employment and the ability to receive future loans. Generally, federal loans are never forgiven in the case of a personal bankruptcy.
If you do experience difficulty in repaying your student loans, consider the income-based repayment or income-contingent repayment plans above as they are designed for graduates facing financial hardship. Also, if you are currently working in public education, law enforcement or nonprofit organizations, you may be eligible for certain levels of debt forgiveness under the Public Service Loan Forgiveness program.
Whatever your situation may be, staying on top of your student loan agreement is extremely important. With proper planning and budgeting, you should soon conquer your debt.
Kristen Fricks-Roman CFP®, CRPS®, is a financial advisor and senior vice president at Morgan Stanley Wealth Management, Atlanta. She can be reached at [email protected].
The information contained in this interview is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management, or its affiliates. Morgan Stanley Smith Barney, LLC, member SIPC.