Fairfield, NJ (PRWEB) May 28, 2014
With high school and college graduation season under way, it’s time to consider how to get a handle on student debt – a phrase that has become tantamount to “higher education.”
College costs have been rising faster than inflation for years and two-thirds of recent bachelor's degree recipients now have outstanding student loans according to a Pew Research Center report, with an average debt of about $29,400 reports the Institute for College Access and Success. That is about $1.1 trillion in American student loan debt, causing concern for not just graduates, but for the overall economy, as well.
“Whether your student is graduating this year or just heading off to college, student debt is a reality for today’s families,” says Brad Bofford and Mike Flower, managing partners of Financial Principles in Fairfield, NJ.
Due to accruing interest, Bofford warns that loans often end up larger than expected making it in a borrower’s best interest to pay them off quickly. "Time is not your friend when it comes to debt, so the sooner you pay, the less you pay in the long run," Bofford advises. “But of course, if you can find a way to pay for college without taking out any loans, you’ll be that much further ahead of the game at graduation.”
After College: Get a Plan to Pay off Debt Fast
The average federal student loan takes around 10 years to pay off after graduation, according to the Consumer Financial Protection Bureau. “That can seriously hamper a graduates ability to buy a house or save for retirement,” says Bofford.
Although most lenders give students a six-month grace period following graduation before they must make their first payment, Bofford urges graduates to prepare to repay loans early by doing the following:
“Student can typically find information about their loans on their credit report,” explains Bofford. “The AnnualCreditReport.com is good place to start your search.”
“If you have multiple loans, determine which one has the highest interest rate and get that paid off first,” says Bofford.
Making payments on time each month have the added benefit of helping establish good credit scores, improving eligibility for future home or car loans, and possibly lowering interest rates.
“But most importantly, do not ignore the situation and risk defaulting on your loan,” warns Bofford. “Your wages can be garnished, tax refunds and Social Security benefits can be withheld, your credit score will crash making it very difficult to buy a house and your ability to secure a new job could even be impacted.”
Bofford first recommends reviewing income and expenses then choosing an affordable amount to set aside each month for direct deposit into a retirement savings account. “Even if you can only afford $25.00 per month at first, you’ll have established a good saving habit and can more easily increase that amount over time.”
Before College: Lessen the Loan Burden
Since college costs can lead to financial strain well past graduation, Flower stresses the importance of preparing early in order to reduce the amount of loan costs needed in the first place. He offers the following planning tips:
Families anxious to help their student are advised not to forgo their own retirement savings in order to provide college tuition. “Student loans may not be ideal, but remember, no one is going to give you a loan to retire,” says Flower.
“Talk with your high school students about how much you can afford and how much they will be responsible to carry in the form of scholarship, their own savings or loans,” urges Flower. “Don’t spring it on them after they have their heart set on a particular school.” Online research and conversations with a school counselor can help narrow the search to qualifying scholarships and more affordable schools.
Students can put some skin in the game. Working throughout high school and college not only helps save for education costs, it often opens doors to additional funding options such as employer-based scholarships and other scholarships designed specifically for working students.
Stafford, PLUS and Perkins are student loans commonly offered through school financial aid packages. Federal student loans usually offer fixed interest rates and repayment plans based on income. Some don’t begin accruing interest until the student graduates and interest on federal loans are often tax deductible, which can save some money down the road. To be considered for a federal loan, start by completing the Free Application for Federal Student Aid (FAFSA).
Because the terms of various loans can vary greatly, the Loan Comparison Calculator at Finaid.org is available for a comparison of loan options.
“Keep in mind that if your school aid package includes a loan with disagreeable terms such as a very high interest rate, you are free to decline that portion of the package,” explains Flower. “And don’t stop investigating scholarships once you begin school. There are many available to current students throughout their college career.”
Earlier this year, the Obama administration proposed a new federal college ratings system based on how well schools perform in such areas as affordability, graduation rates and post-graduation job placement. Although the proposed system is currently being debated, this kind of system could impact the amount of financial aid certain schools have available to offer their students in the future.
“One of the best strategies for achieving financial security is to live debt free,” says Flower. “So don’t wait. Plan, save and repay any loans as early as possible.”
About Financial Principles, LLC
Financial Principles understands the importance of planning – whether it’s for retirement, saving for college or protecting your estate and legacy. Two senior partners, Bradley H. Bofford, CLU, ChFC, CFP® and Michael A. Flower, CFP® bring a combined 40+ years of financial services experience to their clientele. Both are recognized as qualifying life members of the prestigious Million Dollar Round Table, “The Premier Association for Financial Professionals®”. Bofford and Flower have contributed to articles in several leading trade publications including Investment News, Financial Advisor, and Research magazine, as well as consumer outlets such as BusinessWeek, Money and New Jersey Business magazine. Learn more at http://www.financialprinciples.com.
Securities offered through Securities America, Inc. Member FINRA/SIPC. Bradley H. Bofford, CLU, ChFC, CFP® and Michael A. Flower, CFP® are Registered Representatives. Advisory services offered through Securities America Advisors, Inc. Bradley H. Bofford and Michael A. Flower are Investment Advisor Representatives. Financial Principles, LLC and Securities America, Inc. are not affiliated.
Written by Brad Bofford and Mike Flower, Securities America, Inc. Registered Representatives, in conjunction with Impact Communications.
The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan.