After College: What If You Can’t Afford Your Monthly Student Loan Payments?

What if you are or soon will be making payments on your Federal Direct Loans on your Federal Direct Loans (FDLs), but you can’t afford the amount you’re scheduled to pay?

You’ve got a serious problem! The day after you miss some or all of a monthly payment you’re delinquent on your FDL debt. If you don’t pay the delinquent amount within 90 days, you’ll be reported to all three national credit bureaus, which’ll really mess up your credit rating.

And if you’re still delinquent after 270 days, you’re in default.” Now the government’ll inflict some nasty penalties on you — e.g. you’ll be required to pay the full amount of your debt immediately, the Treasury Department’ll take any federal benefits or tax refunds you’d otherwise get to reduce that debt, and your wages will be confiscated for the same purpose.

But there’s good news! You have ways to reduce your monthly payments. Check them out and get into the one that’s best for you immediately upon realizing your monthly payments are too high:

  • Switch Repayment Plans: You’re probably on the 10-year Standard Repayment Plan. It’s great if you can afford it because it’s the quickest and, in the long run, least expensive way to repay your FDL debt. But it typically requires the highest monthly payments of all federal repayment plans. You can switch to another plan that’ll lower those payments — some of them by tying them to your family size and income. Use the Federal Student Loan Repayment Estimator to calculate your payments and the number of months you’ll make them under each plan for which you’re eligible.
  • Consolidate Your FDL Debt: You can also borrow an FDL Consolidation Loan to replace all your existing federal loans, and depending on what you owe you can get a longer (12-30 year) repayment period. While this’ll cost you more to eliminate your debt, it’ll immediately and significantly lower your monthly payments.
  • Deferment: Need to temporarily postpone your monthly payments? Consider getting a deferment. You qualify for a deferment by meeting specific conditions associated with economic hardship; graduate fellowship, in-school status, active military duty (current or recent), rehabilitation training, or unemployment. If you qualify, you’re entitled to a deferment for a certain time period, and Washington won’t charge interest on your subsidized FDL debt during that period.
  • Forbearance: Forbearance lets you totally postpone or reduce your monthly payments for a set number of months. There are “mandatory forbearances” for those in AmerCorps, the Department of Defense Student Loan Repayment Program, medical or dental internships or residencies, national guard duty, high student loan debt burden situations, and the Teacher Loan Forgiveness program. There’s also a “general forbearance” for borrowers changing jobs, paying off medical expenses, experiencing financial difficulties, and enduring other problems acceptable to their loan servicers. The downside? Washington charges interest on your subsidized FDL debt while you’re forbearance, then adds whatever interest is unpaid to your loan principal when forbearance ends.

If your monthly payments are or will be unaffordable, pick your best option for reducing them and contact your loan servicer to get it — right away!

Need help analyzing your options, contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com to arrange a consultation. We never charge borrowers for consulting with them!

Before College: How Your Fellow Americans Pay for College

Ever wonder how your friends and neighbors cover college costs? Sallie Mae has been researching this for the last 12 years. It’s most recent data were gathered last spring through interviews with 18-24 year old undergraduates and their parents. They offer some valuable insights.

College-Related Costs

College-related costs averaged $26,226 in academic year 2018-19 — just about the $25,890 average cost of attendance published by public four-year institutions. Of course, these costs keep rising but, even if they were to remain at 2018-19 levels for the four or more years it takes to get a bachelor’s degree, college costs would total at least $105,000 per student — way too much for low and middle-income American families to fully pay from their annual earnings.

College Finance Plans

Clearly, families need to execute college finance plans — featuring investments, savings, and other strategies — well before their students ever enroll, but just 46% of parents and 31% of undergraduates reported that they had such plans. Small wonder Americans now owe $1.5 trillion in college debt!

College Funding Sources

Despite their heavy reliance on financial aid and loans, families are the biggest source of college funding. Earnings and savings by parents and students combined to cover $11,303 (43%) of 2018-19’s college-related costs. However, since less than half of households have college financing plans, most of this comes earnings during the college years, not savings, meaning that parents and students pass up other important purchases, work extra jobs, and maximize overtime hours.

Most families count on grants and scholarships to help offset college costs. In 2018-19, 70% applied for financial assistance, and 57% received grants while 65% got scholarships. But grant and scholarship money combined to average just $8,177 — less than 32% that year’s college expenses.

Then there are loans. Although 28% of families hadn’t planned to borrow for college in 2018-19, more than half of them took on postsecondary debt during that year. Average amounts borrowed were $3,746 for undergraduates and $2,585 for parents. This means loans paid 24% of costs incurred while in college. But since they must be repaid with interest, loans actually expand and extend college costs.

Perceived Value of Higher Education

People know borrowing has drawbacks. The more debt students and parents took on, the more likely they were to feel that postsecondary learning was overpriced and overvalued. Clearly, the amounts that must be borrowed for college contribute to today’s high dropout rates.

Take Aways

These data suggest some important things about paying for college:

  • College is so expensive that, no matter how far away it is, you need a college finance plan.
  • Aggressively seek grants and scholarships before and during college, but you can’t count on them to cover even half of college-related costs.
  • Remember, students and parents pay the largest share of college costs, either from their incomes, their savings, or by borrowing.
  • The less borrowed, the more likely students are to actually get the degrees they seek.

Do you have one or more family members who are college-bound? Trying to figure out how you and they can minimize debt when paying college-related costs? A no-charge consultation with College Affordability Solutions just might help. Contact us at (512) 366-5354 or collegeafford@gmail.com.

During College: New Year’s Resolutions to Help Current Students Make College More Affordable

January begins a new calendar year. For postsecondary students, it often marks the beginning of a new academic term. So its a great time to make New Year’s resolutions that’ll help make your education more affordable.

  • I’ll make a spending plan for my money each academic term! Add up the money you’ll have after paying for tuition and required fees (including room and board if living on-campus). Then divide the term into weeks. For each week, project what you’ll need for crucial necessities such as, if you live off-campus, groceries, rent, transportation to and from campus, and utilities. What remains is what you’ll have for personal spending — clothes, eating out, toiletries, etc. Need more? Seek a part-time job or expand, within limits, your hours in your current part-time job.
  • I won’t borrow more than I need, no matter how much my school offers me in federal student loans! Your financial aid office may offer the maximum amount for which you’re eligible from the Federal Direct Student Loan Program (FDLP), not just what you need. But the more you borrow the more interest you’ll be charged. At current interest rates, every $100 you borrow will cost as much as $44 in extra interest over the life of your loan. So contact your aid office about declining or downsizing any FDLP loans (unsubsidized loans first) you don’t need.
  • I’ll prepay my federal student loans whenever I can afford it! If you couldn’t downsize your FDLP loans, or if you have money left when end of the term’s coming, contact your aid office for help in making a “prepayment” on your FDLP loans (again, unsubsidized loans first) within 120 days of their disbursement date. Any amount you prepay this way will have it’s loan fees and interest cancelled.
  • I’ll keep trying for scholarships until I graduate! Plenty of students pursue scholarships before college, but far fewer do so once enrolled. Big mistake! Many scholarships are targeted at students already attending postsecondary schools. They may be offered by on-campus departments, off-campus organizations, and even providers in your hometown. So keep looking for them!

College costs can eat up considerable amounts of your lifetime earnings and take as long as 30 years to pay. So keep New Year’s resolutions such as these now for a better life later!

College Affordability Solutions can help you find ways to cut your college costs. For a free consultation, contact us at (512) 366-5354 or collegeafford@gmail.com.

Before College: New Year’s Resolutions for Parents of College-Bound Students to Make College More Affordable

January is New Year’s resolution time! If you want your child to get a college degree, here are just some of the college-affordability resolutions you should pursue this year.

  • I’ll maximize my investments and savings for my child’s college education! One academic year at a public 4-year college or university now costs $26,590 on average — a whopping 42% of Median Household Income (MHI)! At their current growth rate, this cost will grow to almost $35,000 in 10 years. Your annual earnings during the college years probably won’t cover them all. Put aside everything you can now so your child, and you, can borrow less later.
  • I’ll help my preteen become a strong reader, speaker, and writer! Good communication skills are important in almost everything, including college scholarships. Applicant essays and interviews usually get careful consideration from scholarship evaluators. Students who express themselves clearly, succinctly with grammatical correctness get more scholarships.
  • I’ll encourage my high schooler to participate in extracurricular activities, pursue leadership positions, and take on part-time employment! These things can enrich the high school years. But also, few scholarships get awarded solely on the basis of grades. Applicants strengthen their scholarship chances by persisting in out-of-class activities, working their way into leadership roles, and holding jobs.
  • I’ll help my high schooler begin identifying a career direction! This includes pinpointing activities and classes that make her happy, creating a self-portrait consisting of statements describing her personality, and developing a list of her top five strengths and weaknesses. She can seek fields of study and occupations that match these qualities by consulting her high school counselor and/or using online tools such as College Board’s Major and Career Search. All this will position her to better select the right postsecondary school and major.
  • I’ll support my child taking dual credit classes to attend college during high school. Almost every community college offers dual credit courses for low or no tuition. They provide a taste of college-level coursework and, provided they transfer into the college she’ll eventually attend, they’ll reduce her college costs by shortening the time it takes her to get the degree she wants.
  • If my child’s selecting a college this year, I won’t worry about it’s level of status and prestige! Focus instead on finding a college that’ll fit her well to reduce the chances of her transferring and having to pay for previously completed courses not accepted by her new school. Also, consider having her start at her local community college — where average cost of attendance can be as little as 35% of a public 4-year institution — for general courses that’ll transfer to wherever she’ll complete her bachelor’s degree.
  • If my child will leave home for college this year, I’ll ensure that she knows how to manage her money before he does. The merchants surrounding campus and those on-campus bookstores and eateries love separating students from their money. But knowing how to prioritize her spending, construct a spending plan (most students hate the word “budget”), and stick with that plan will make your child less likely to need emergency funds because her money’s run out.

Whether college will come sooner or later, things can done to make it more affordable. Get started now!

Looking for help in putting the pre-college parts of your postsecondary education finance plan together. Feel free to reach out to College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com to arrange a cost-free consultation.