Seeing commercials on television about 1-800 numbers intended to scam people into consolidating their student loan debt with a company no one has ever heard of and has no entry on the Better Business Bureau causes me a bit of concern. Partly because people struggle with their student loan debt because they don’t know how not to and these companies are preying on that and partly because people don’t know how not to struggle with their student loan debt and there’s really no reason for it to be complicated. Below are five things people don’t seem to understand about student loan debt which should be helpful whether you are a new freshman scared to take out loans or a former graduate who is now struggling to pay them back.
Student loan interest is tax deductible. After you start paying back your loans (six months after graduation), you will start receiving a 1099 interest form from your loan company with the amount of interest you have paid throughout the year. You can enter this on your taxes and will get a considerable majority, if not all of it added to your refund.
You can change your payments. Your loan payments are based on a percentage of your income but if you contact your loan company (before you get into trouble), it is possible they can reduce your payments for a set period of time to help you catch up. They may also offer a short deferment period in which you can (but are not obligated to) make payments but accrue no interest. This means any payments you make while on deferment go directly to the principle of the loan, not to the interest.
Deferments come in many shapes and sizes. Many people assume the only way to get a loan deferment is to keep going to school. While this is true, you can also get deferments if you lose a job or have your pay reduced or if you experience a hardship such as a medical condition. There are also potential deferments just for working or volunteering for specific organizations or companies. The most important thing is to keep in contact with your loan company and alert them to any changes in your life that will affect your ability to pay as soon as you are aware of them.
You have options for consolidation. Generally, within weeks of your graduation, you will start receiving information regarding consolidating your loans. Research these options carefully. In most cases, you will only be allowed to consolidate once so be sure to check out things like including federal and private loans together, payment schedules and interest rates. Consolidating locks you into the interest rate you are offered for the length of your contract and gives you the convenience of making one payment to cover all of your loans rather than individual payments to each separate one.
Maintaining your loans is good for your credit score. Student loans are not like personal loans or credit card debt. Student loan debt is considered “good” debt and making your payments on time and more than is required whenever possible reflects favorably on your credit history and will help you when it’s time to buy a house or new car.
Overall, student loans are nothing anyone should be afraid of. As long as you keep up with the payments and contact your loan company as soon as you know you can’t, you will establish a good relationship with your loan company and they will be more likely to work with you any time you need a little help.