Prepare in advance for student loan changes
Student loan balances have surpassed credit card debt as the largest balances consumers carry. Student loan debt in the U.S. recently reached $1 trillion, and has made it difficult for new graduates who are just starting out to develop a solid financial foundation. The high unemployment rate has added to matters by keeping young Americans out of the job market and giving them few options to cover their student loan payments.
In an attempt to provide some relief to young adults, some lawmakers proposed extending the current interest rate of 3.4 percent for another year, according to CNN Money. The rate is expected to double on July 1 if these measures are not passed. However, the Senate failed to get enough votes to pass the measure.
Individuals who owe sizable student loans may benefit from planning ahead to keep their costs low. Interest rates will impact the monthly payment amount, as well as the amount of interest consumers pay over the life of their loan. There are several options adults have for managing their payments.
First and foremost, young adults should create a budget. Developing a money management program will allow individuals to account for their spending and determine how much of a payment they can afford to make. This becomes crucial when deciding on a repayment plan. Individuals who took out federal student loans have several repayment plans to choose from, ranging from a standard 10-year plan to an extended 25-year plan. In addition, consumers with a limited income may qualify for an income-contingent repayment plan, which will allow their monthly payments to fluctuate based on their employment income. Young adults who are employed may also qualify for a graduated repayment plan, which charges low monthly payments that increase in size over a period of years.
Consumers can also consult a credit counselor to help them determine other options that may lower their payments. For example, young adults with several types of student loans may consider consolidating balances into one monthly payment under one fixed interest rate. This allows young adults to get locked into one rate and manage their payments more easily.
Lastly, young adults who agree to let their lender automatically debit monthly payments from their checking account may qualify for an interest break.