Student Loan Or Credit Card Debt?
If you are having problems keeping up with your student loan and credit card debt, you are not alone. If you feel like you need to choose between paying one or the other, consider the following options to reduce the monthly payments on both.
Defaulting on either can have serious consequences on your credit score which can affect your employability, auto and homeowner’s insurance rates and your ability to take out loans. Under very rare circumstances, a student loan debt can be discharged in bankruptcy. This is generally only the case when a judge deems repayment an undue hardship (if you become disabled, for example).
Credit Card Debt Debt Relief
To make room in your budget, call your credit card companies and ask for an interest rate reduction. If you are current and have a track record of on-time payments, you might be successful with this strategy. Consider transferring your balances to lower interest cards, but be careful and read the fine print. Make sure you fully understand the fees associated with transferring your balance. Some cards add hefty balance transfer fees.
Another option is to contact a nonprofit credit counseling agency where a qualified credit counselor can help you analyze your current income and expenses. A debt management program may be one solutions to help you with your unsecured credit card debt. After several months of on-time payments, you may find that your interest rates have been reduced and fees waived. Also, a debt management program consolidates your debts, without having to take out a new loan. You’ll have one manageable monthly payment. This may help you make more room in your budget to tackle your student loan debt.
Student Loan Debt Relief
There are many strategies to reducing your student loan payments, as well. Here are a few:
- Extended repayment. This plan is similar to the standard repayment plan, but it allows a longer term of 12 to 30 years to repay the loan, depending on the amount of the loan. Lengthening the repayment period will lower the monthly payments, but increase the total payment.
- Graduated repayment. The graduated repayment plan starts with lower loan payments and then gradually increases every two years. The length of the loan is 12 to 30 years, which normally depends on the total amount of the loan. The payment itself is subject to some guidelines. First, the payment under the graduated repayment plan can be less than 50% and no more than 150% of the monthly payment under the standard repayment plan. The monthly payment must also be at least $25.00.
- Income Contingent Repayment. Under the income contingent replacement plan, payments are based on the student’s income and the total amount of debt. The monthly payments are adjusted each year as the student’s income changes. The loan term can be up to 25 years. If there is any remaining balance after 25 years, it will be discharged. The amount of the discharge could be taxable as current income. The minimum monthly payment under the income contingent repayment plan is five dollars. Income contingent repayment plans are only available for student loans, not parent loans.
- Deferment means that your loan is effectively frozen in time. That is, payment of principal and interest are deferred. However, depending on the type of loan, interest can continue to accrue (accumulate) on the balance. Only Federal Perkins Loans and subsidized Stafford Loans freeze interest accumulation during deferment.
Deferments are only granted under these conditions:
- Attending undergraduate school full-time or at least half time
- Unemployment (deferment can last up to three years)
- Graduate school
- Economic hardship (up to three years)
Forbearance is similar to deferment, but the interest charges on the loan continue to accrue. You must make payments on the interest charges while your loan is in forbearance. Forbearance is granted in 12-month intervals for up to three years.
- Your student loan may be cancelled (considered closed and paid) if it meets the following criteria:
- You become permanently disabled.
- The school that you attended closed while you were attending or within 90 days of your departure from the school.
- National Defense Student Loans can be cancelled in return for full-time teaching or military service.
- Stafford and Perkins Loans can be cancelled if you teach in a low-income school.
- In some circumstances, the obligation to repay your loan may be cancelled in the event of bankruptcy. However, most student loans continue to be your responsibility even if you declare bankruptcy.
Direct student loans can be forgiven through the Public Service Loan Forgiveness program. Under this program, certain public service employment can qualify you for loan forgiveness after making 120 payments on certain repayment programs. Learn more about this Public Service Loan Forgiveness program.
If you are having problems making your student loan payments or if you want to apply for a change in repayment plan, deferment, forbearance, or student loan consolidation, contact these resources:
What Percent of College Students Have Credit Card Debt?
According to “Majoring In Money,’’ a 2016 report by student loan provider Sallie Mae, 56% of college students have a credit card. A much larger number (85%) have debit cards. Asked why they don’t have credit cards, 51% of the surveyed students said they didn’t feel like they needed one and 47% wanted to avoid debt.
There are other encouraging signs. Nearly two-thirds (63%) of the student credit card holders pay their balance in full each month. Just 8% pay only the minimum amount due each month.
Credit card use by college student has been discouraged since the Credit Card Act of 2009, which bans credit card approvals for anyone under 21 years old, unless they have an adult co-signer or can prove they have sufficient income to pay the bills.
The annual average credit card balance of all student cardholders in 2015 was $906, but there was a significant difference by age group. Younger students (age 18-20) carried a $611 average balance, while older students (age 21-22, $1,013 average balance; age 22-23, $1,109 average balance) had more debt.