Last week, the Student Loan Ranger talked about the most
recent statistics on student loan default rates. The cohort default rate is
published annually by the Department of Education; while few additional details
are provided, this week's blog will revisit some strategies to ensure that you
don't become part of those default statistics.
Before You Start
The most important part of the not-defaulting strategy is to
choose the school that's right for you. That's because the majority of
borrowers who default on their student loans never completed their degree or
credential.
If you're not happy or struggle at your school of choice,
you're much less likely to complete your education, and if that happens, you're
much more likely to default on your loans.
Even if the school is a perfect environmental fit, if you're
going to end up with an unaffordable debt level, you might as well be paddling
backwards. Too many borrowers have made the college decision an emotional one,
rather than the significant financial decision that it is. Do your homework:
compare college costs, graduation rates, student income after graduation and
loan repayment rates, among other factors.
While You're at College
It's so much easier to take out a student loan these days
than it was 10 or 15 years ago, when most of the application process, including
the Free Application for Federal Student Aid, was paper that had to be mailed
for processing.
The downside to today's more streamlined process is that it
makes loan monies more easily accessible, and therefore, easier to let it get
out of hand. A $10,000 or even $20,000 loan may sound manageable until you
multiply it by the four or five years it's going to take you to get your
degree, and suddenly you're looking at a $1,000 per month student loan
payment.
Budget creep can be equally dangerous. A modest $3 per day
coffee is going to cost you almost $5,000 over a four-year period if you
include the interest that will accrue on the student loan funds you used to pay
for that drink. If you decide to use your summer job money for an exotic spring
break trip instead of for books and school year living expenses, that's
another couple of thousand dollars gone.
Having a budget and itemizing expenses is a good way to
ensure that you keep a handle on your spending and keep the student loan
borrowing to a minimum.
After You've Left School
A common denominator for student loan defaulters is that
many of them never once connect with their loan holders – and that's just
maddening. What's worse is that many of these same defaulters aren't even sure
what loans they have or who the holder is.
The National Student Loan Data System will not only list all
of your student loans for you, but it will also give you contact information
for your loan holders and each loan's status, approximate balance and what
school it was for. If you have private loans, your credit report will help you
track those down.
If you're struggling or think you might struggle down the
line, contact your loan holder to learn what lower payment and other options
you might be eligible for.
Many borrowers who default, especially those who do so
within the first three years of payment, do so without ever making a single
payment. Some explain this by claiming never to have received a bill or phone
call. Not receiving a bill is not a good defense for not paying it – and that
goes for most consumer debts, not just student loans.
It's your responsibility as the borrower to keep your loan
holder current on your contact information and mailing address, as well as
knowing when your first payment is due.
Finally, educate yourself on the terms of the loan and what
options may be available. Doing so can help you make smarter decisions as to
how to pay those Education
loans in an affordable and efficient manner.
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