Today's Post was written by Financial Coach Tonia Peasley
I’ve spent the better part of the week researching Student Loan Forgiveness programs and have come to the conclusion that Student Loans are like an onion, they consist of many layers of information that is sometimes difficult to peel back and decipher. According to the latest Forbes research, the Student Loan debt in our country has reached an astronomical number, $1.56 trillion to be exact.1 The latest student loan debt statistics for 2020 show how serious the student loan debt crisis has become for borrowers across all demographics and age groups. In the U.S. just over 45 million borrowers owe nearly $1.6 trillion in student loan debt
This has led me to dive deeper and hopefully provide a few strategies to you as you help you or your young adult navigate this sea of information. Student Loan debt is inevitable for some people but I do think there are some strategies that can be deployed early on to help you or your student manage the dollars needed to complete their education. As always, do yourself and your student a favor and have the conversation ahead of time about student loan debt.
- Only use Student Loans for what you absolutely need to. Student loans come in different forms. You can apply for loans that the payment goes directly to the school or you have funds that can be sent directly to you and you then disburse to the school. Be careful with this option. I once worked with a student that used a portion of her student loan to buy a dog from a breeder. Later down the road, 7 years later, we determined her beloved “best friend” had cost her over $7,000 in the long run and unfortunately the dog had passed on before he was even paid off.
- Understand the different loan options. Federal Student Loans have far more protections as far as repayment plans and forgiveness options than private loans do. Although you might feel like you are getting a better rate through a private lender, take into account the possibility that life happens and you may need to apply for a different repayment plan down the road. Private loans do not always give you this option. Also, let your student see what they can qualify for without you co-signing. This will provide them with real life “adulting” responsibilities.
- If you are in the military and thinking about retiring relatively soon, make sure you have taken the steps in advance; four years in advance, to transfer your benefits to your spouse and dependents for the Post 9/11 Forever GI Bill. You need to serve an additional FOUR years after transferring your benefits for them to be transferrable. Remember, you can change how many months each dependent gets after retirement, but you can’t add individuals to receive the benefits. Make sure you take care of this in advance or you will leave benefits on the table.
- Talk with your kids about the reality of Student Loans. Help them understand how much it will cost down the road in relation to their income and other expenses. For example: If you have $50,000 in loans and you are making $50,000 annually, with a 5.3 percent interest rate, you'll pay $538 a month consistently for 10 years to pay off the loan.2 Add that to a car loan, rent for an apartment and you have all but eaten up all the paycheck.
Finally, Student Loan Debt doesn’t have to be a difficult topic if you have someone walk you through the process. Feel free to reach out to us for Financial Coaching for that Young Adult in your household. Whether they are newly graduated, heading off to college or newly or soon to be married, having an accountability partner educate them and have those difficult conversations is something that will benefit you and them as an investment in education for a lifetime.
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2The monthly repayment estimates below were calculated using the StudentLoan.gov Repayment Estimator. The estimates assume a family size of one and a 5.3 percent interest rate on the loan (the fixed rate for a Graduate PLUS loan).