(NOTE: This is the first of a ten part series on student loans, check back every Tuesday for the next part – Jason)
A friend of mine recently applied for a mortgage and was declined. Reason: bad credit. As soon as he got home from the bank he called Equifax for his credit report. Low and behold, there was a collection on his account, resulting from an old student loan. The balance was only $2500, a far cry from the original $21 000 he had borrowed. However, in the general business of his life, working, marrying, starting a family, moving a couple times, the student loan somehow became lost in the shuffle. This piddly balance had been quietly deteriorating his credit report after being sent into collections in 2005.
Once my friend discovered the problem, he immediately took action to pay it off. Now, two months later, the balance is paid. Unfortunately, credit takes time to heal, and the collection will remain on his report for seven years from the date of the last activity, which is, of-course his final payment. Just when you think life is treating you well – bam, you get hit with that old student loan debt.
The biggest problem with student loans is that most of us get them when we are too young to handle that much debt. Most student loans have a ten year amortization, which is a lifetime to twenty-two year old. Add to that about half of graduates don’t end up in the career they studied for, and it’s little wonder that many student loans fall into collections.
So, is there anything you can do to avoid the student loan debt-trap? You bet there is.
The Canadian Student Loan program is slowly but surely changing the system. At long last student loan administrators have figured out that students have little cash to pay back thousands of dollars upon graduation. Over the years, too many students have become victims of high debtload. Thanks to modern social networks, such as facebook and blogs, post secondary debt holders have found a way to voice their immense dissatisfaction with the system, and the unified cry has been heard.
Changes in the system, however, are slow, and generally only apply to new students. In comparison to the $13 billion Canadian student debt load, offering $2000 in grants to new students is a drop in the bucket.
So, lets cut to the chase. What former students really want to know is, “How am I ever going to pay this student loan back?”
It’s difficult but not impossible. The biggest challenge is making the debt manageable when your income is low or next to nothing. That’s what we’re here for. It’s time you learned how to say good bye to your student loan debt. Avoid the traps, pay off your student loans and protect your credit reputation for the future.
Step One: Take a Reality Check.
I know you’ve heard this before, but it’s really important to have a plan to manage your debt, especially when you are on a budget. There may be times in your life when you can “wing it”, but keeping control of your student loan requires a set course.
How do you get a plan? Start by figuring out what you owe and who you owe it to. We’re not just talking student loans here. Do you pay rent? Car insurance? Credit cards? Are you a regular at The Beer Store on Friday nights? Yes, put that into your budget too. There’s no point in kidding yourself that you’ll give it up if you know you won’t. You can however, plan for your spending.
Ok, so you know how much you are spending on bills, student loans and recreation. How much money is coming in? Ahhh, there’s the rub. If you’re income level is dramatically higher than your expense list, you should have no problem kicking back that student loan debt. In that case, pay extra, pay often and send your student loan the way of the blue suede shoe. If you’re not a member of this lucky group and your debt list is painfully higher than your meager income, stick around. I will show you the ins and outs of paying down your debt, where to find help and which ideas will actually work to pay off your student loans.