Student debt is no joke.
If there is one major economic crisis facing young people nowadays, it is student debt.
According to the UK Parliament, student loans in the UK total more than £121 billion with that number growing by the second.
More than £16 billion is loaned to students each year. The value of outstanding loans at the end of March 2019 reached £121 billion. The Government forecasts the value of outstanding loans to be around £450 billion (2018‑19 prices) by the middle of this century.Parliament.UK
For many recent graduates, student debt is like a perpetual dark cloud hanging over the horizon, always in view as an ominous reminder of what is to come.
The extreme burden from the student debt crisis has made it much more difficult for millennials to buy homes and participate in the economy in a significant manner like previous generations.
There is much current political debate on what to do about the student debt crisis, but in the meantime, graduates facing mountains of debt cannot just sit around and hope for the best; they need determine steps on how to minimize their student debt now.
Keeping student debt under control is critical for your long term financial health and involves making regular payments, avoiding fees/extra interest costs, and keeping your credit healthy.
In this article, we offer a few tips to those who are struggling with their student debt. We hope you find this helpful in making your loans more manageable.
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1. Know your loan terms inside out
Above all, you have to have a thorough knowledge of your loan terms, payments, balance, and repayment status. Contact your lending agency or your school for records of payments.
Keeping on top of your loan is important because your balance, repayment status, and lender determine what kinds of loan forgiveness programs you are eligible for.
You should be able to recite any important loan information on command.
2. Consider consolidating loans
Consolidating your loans essentially involves using one larger loan to pay off several smaller loans. The benefit of loan consolidation is that is can lower your monthly payments and interest rates.
There are two major types of loan consolidation, secured and unsecured.
Secured loans are more solid but require some form of collateral, such as a house, car, or wages. Unsecured loans have no collateral requirements but are typically more difficult to qualify.
Although consolidation lowers the monthly burden of your loan payments, it also tends to lengthen your pay period.
In that sense loan consolidation is a double-edged sword; overall you will be paying more in interest because the repayment period is longer, however, monthly payments are much easier to manage.
For some loans, debt consolidation makes you ineligible for deferment options and income-based payment plans, so make sure to review the terms of any loan consolidation thoroughly.
3. Explore alternate payment plans
Student loans are typically open to many payment plans.
Most of these plans will lower your required monthly payments but they also will extend the length of your loan period.
Unfortunately, alternate payment options for private loans are much more scarce and depend on the lender.
4. Refinance your loan
One potential option for paying back student debt is to refinance your loans. Refinancing a loan lets you take out a loan from a private lender to pay off another loan.
The second loan has different payment terms, including different interest rates and monthly payments. The best option for refinancing is to find a second loan with a lower interest rate than your first loan. Refinancing does have some negatives though. If you have a loan, refinancing makes you ineligible for various repayment options such as income-based payments and public service loan forgiveness.
5. Take advantage of the grace period
Most student loans have a grace period after graduation in which you are not required to make any payments. You should not simply forget about your loans and ignore your debt during this period.
The grace period is the time to make a comprehensive plan and begin paying off your debt.
If you know your payments are going to be £300 a month after an 8-month grace period, start saving immediately and making your principle payments now.
By the time you own anything, you will already be £2,400 ahead and in the habit of setting aside that £300 a month.
6. Budget hard
We understand; you are not keen on the “uni lifestyle” of eating pot noodles every night and using cheap furniture anymore.
The whole point of going to college was to get a good job and finally make some money to buy nice things, right?
While that may be true, the reality of student debt requires many full-time workers to live a frugal lifestyle.
It may not be glamorous, but the less you spend on unnecessary extravagances, the quicker you will pay off your debt. Some ways to budget your money include:
- Live with a roommate or two to share expenses.
- Eat out less and cook at home as much as possible.
- Invest in a few good quality outfits for work, but dress cheaply otherwise.
- If it suits, try to go without a car. Public transportation, biking, and ride-sharing are all good ways to save money on your commute.
- Consider selling any semi-valuable possessions you do not need, such as video game systems, TV, fancy gadgets, anything not strictly necessary.
After years of living like a poor college student, we understand that minimalist living is not desirable, but think of it this way: Every £30 you do not spend on takeout is £30 more towards paying off your loans; every £100 you don’t spend on those concert tickets is £100 close to financial stability.
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7. Find a side hustle
One of the great things about the internet is the emergence of the gig economy. Thanks to apps like Fiverr, Rover, DoorDash, Uber, and more, individual people can sell/rent out their services to make some extra money on the side.
Consider picking up some odd jobs on the side to supplement your main income.
Just a few hours driving for ridesharing apps can get you an extra £150 a week, which amounts to an extra ~ £600 per month.
The best part about the gig economy is how flexible the opportunities are. You can put in your 9-5 during the day, then hustle from 6-9 or on the weekends.
8. Take advantage of tax time
One of the things that make student loans so hard to pay off is the monthly interest that accrues.
While monthly interest payments can be a pain, they can help you qualify for a tax break.
In many cases, you can get a refund for overpaying any loans.
Mountains of student debt may seem insurmountable, but it does not have to be. There are determinate steps you can take to make paying your loans off easier and less of a financial burden.
From hardcore budgeting to exploring alternate payment options, you can ease the burden of debt and make significant steps towards paying off outstanding student loans.
Not all of these tips may be applicable for you, particularly if the bulk of your loans are from private lenders, but the absolute worst thing you can do is just do nothing and hope for the best.
Forgoing your loan payments not only furthers your debt problem but will also tank your credit making it even more difficult to get out of the financial hole.