Weekly groceries, winter clothes, wooden shelves--our children watch us purchase these things with a tiny piece of plastic, putting off payment for months. And they, too, will eventually be up to their ears in student loan debt. In our credit-addicted society, when it comes to understanding the pros and cons of borrowing money, the learning process starts at home.
What do the experts advise? "When your kids are in high school, get them a credit card. Have them start working and putting some of their money towards their payments. They need to understand why it's important to pay off their debts." So says Steve Rhode, founder of MyVesta.org, a non-profit financial crisis center.
The Student Outlook Even before applying to college, its wise to pay a visit to the local college or university financial aid office. Counselors there can guide your research and help determine how much you really need to borrow. If you're planning on majoring in oceanography, you don't want to end up with $100,000 in student loans after graduation. You need to be realistic about your entry-level salary expectations.
Once you receive your student loan(s), you'll have plenty of paperwork to manage. Instead of being bogged down by applications, forms, notices, and statements, maintain an organized record system. You should draft a borrowing plan and precise repayment budget. Robin Leonard, author of Take Control of Your Student Loan Debt, says that will help you figure out what you owe, who you owe, and when your payments are due. When students finally get out into the real world, they may take exorbitant credit card debt with them. To avoid getting in over your head, charge only what you know you can afford. During your college years, try to pay every bill in full each month. You should also get into the habit of saving some money. If taking a part-time job isn't feasible, try to reduce your consumption. Buy the things you really need--and sacrifice everything else.
Truth and Consequences If you let your loan payments slip, you'll probably hear from your lender. Tougher consequences may come later. Your federal and state income tax refunds could be intercepted, a portion of your paycheck might be withheld, or you could even be sued. Utter carelessness leads to actions like these. For example, if you relocate upon graduation, don't forget to notify your loan servicer. Have all loan correspondence forwarded to your new mailing address; you don't want to miss balance statements and requests for payment.
After graduation, if your dream job doesn't work out, don't panic. Many lenders now offer flexible repayment options for those faced with an economic hardship. There are graduated repayment plans, which are based on your current income. You can even package multiple loans into one, reducing your monthly payments by extending the repayment period.
Above all, if you fall behind in loan repayments, don't ignore calls from your loan servicer. Explain your situation before it worsens. Erin Love, a Sallie Mae (Student Loan Marketing Association) representative, advises being proactive if problems come up. "Servicers would rather assist a borrower with a variety of options that will bring the account current," she says, "than just let the loans default."
Erika Welz Prafder is the president of Real World Careers, assisting college students and graduates in their hunt for quality employment. She also writes a weekly career column for The New York Post.
