Understanding Student Loan Debt - What You Need To Know

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Dealing with student loan debt.

For the people who have just recently graduated, understanding student loan debt is crucial for long term financial management. Knowing exactly how much you owe, and to whom, can help you create a budget you can live with and it even impacts the types of jobs you can accept.

College graduates today can end up with an average student loan debt of over $40,000 for a four year degree. This can mean that you can look forward to paying for your education for the next 10 years or more.

Student loan debt is tricky and it is different that credit card debt. With almost any other sort of debt, if you find yourself in serious financial trouble and have to declare bankruptcy, most all debts will be discharged. Of course, your credit will take a huge hit, but you will be able to get out from under the debt. With student loans however, if you fail to make your payments, not only will your credit take the hit, you won't be able to get rid of it.

If you have just graduated, here is an infographic from the money managers at Mint.com that can help you make sense of it all:

Provided by Mint.com

As you can see, deciding how to repay your debt is really important. There are three options to chose from:
  1. Standard payment plan - This method offers the lowest repayment period, but the highest monthly rate. For a $40,000 loan, you will have it repaid in 10 years by making a monthly payment of about $460.32.
  2. Consolidated repayment plan - For this plan, you have to first consolidate all of your loans into one loan that you can repay in 15-30 years. The interest rate stays the same as the standard plan, but the monthly payment would decrease to an estimated $279.53.
  3. Income-based repayment plan - This plan is a little bit confusing. Your repayment amount is adjusted so that it is about 15% of your income. So, a person who earns $30,000 would pay $170 a month. No matter how much money you earn, the monthly amount won't exceed the $460.32 that you would have to pay with the standard plan. The big drawback to this plan is that you will continue to pay until the debt is paid off, or if you haven't managed to pay it all off after making payments for 25 years, the remaining amount will be forgiven.

Student loan debt is serious business. Think about what your future plans are and try to come up with an option you can live with. The income-based plan looks good, but 25 years is a really long time to be stuck with student loan debt. You have to consider that if you are 25 when you graduate, you will be 50 by the time you have managed to pay for college. By that time you pay it off, you might end up paying for your child's college tuition.

Have you struggled to pay off your student loan debt? What plan do you think works the best? Let me know in the comments.

By Melissa Kennedy- Melissa is a 9 year blog veteran and a freelance writer for Administrativejobsblog. Along with helping others find the job of their dreams, she enjoys computer geekery, raising a teenager, supporting her local library, writing about herself in the third person and working on her next novel.


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