Advice Male Perspective

Dealing With Student Debt

Sadly a large financial debt is a common reality for students who attend post-secondary education and they are growing larger and larger as the amount of scholarships and grants decline.  Students are typically graduating with debts in the tens of thousands of dollars and are finding the handling of such debts very difficult.  With a tough job market- where many positions pay only minimum wage- graduates are facing a very harrowing situation.

So what do you do?  Well, one of the first things you may want to look into is to see if the government in your jurisdiction has made it that if you declare bankruptcy it won’t wipe out your student debt.  Many governments over the last decade or so have amended their bankruptcy laws so that if you do choose to declare bankruptcy, you’ll still owe all the money for your student loans.  However, not every legal jurisdiction has taken this step, so it is one you may want to consider if your student debt is particularly burdensome.  While many financial advisors might advise you that declaring bankruptcy will damage your credit rating that can be mended over time and better that consequence than barely being able to financially survive.

Next, if your student debt is through federal, provincial, or state loans, you may want to apply to the government in question for forgiveness on at least part of the money you owe.  Many governments do offer forgiveness on a student loan depending on your financial circumstances, so look into this option as it will reduce the financial debt you have to pay back.

Most jurisdictions will at the minimum allow you to claim the interest you are paying on your student loan as a tax deduction.  Also, almost every jurisdiction allows you to claim as a deduction the tuition you pay each year.  If you are still a student, and you’ve been getting a tax refund because of the tax deduction from your tuition and if you are in the financial position to do so, you should be saving that money to help pay down your student loan after you graduate.  Even if you don’t earn any money annually, you should still be filing a tax return because with your student tuition you’ll have on record a tax deduction that you can carry forward to claim against future years when you are earning some money.

With most student loans there is often a surprise that happens six months after you’ve graduated that they don’t really tell you about.  Often the sales pitch for the student loan is that you won’t pay any interest while you’re in school.  However, six months after you graduate many banks and governments take all that interest you would have been charged on your student loan while you were in school and then they dump it in one big chunk onto the total amount of money you owe to them.  Next, they begin to charge interest on not only the money you originally borrowed, but this chunk of interest they’ve dumped on top.  Thus, your debt is even more burdensome as you start to have interest charged on interest.  You need to find out if this will happen with your loan so you can at least save up some money to pay for that chunk of interest they may dump on top of your principal amount to ensure you don’t end up paying interest on top of interest.

When paying a student loan, the best approach is to setup an arrangement where you pay the minimum amount possible each month with the option at any time of paying more into the loan to reduce it.  Pretty much any bank or government will usually allow you to make this arrangement.  A common mistake that many graduates allow themselves to be talked into is where they agree to a monthly amount that is too high, which they will have difficulty paying off and then they incur penalties for failing to meet their monthly payment.  Thus, they end up paying even more money towards what seems like an unending debt.  Being that this is the beginning of your career, typically the amount of money you make on a monthly basis may be somewhat erratic.  That’s why it’s always better to setup the minimum monthly payment with the option of paying more into at any time.

In all honesty paying off your student debt completely may not be possible during your working life if your income is too low.  However, as described earlier, it can be managed.  The best approach though for eliminating your student debt completely, in a short period of time, is to have a steady income and curb your costs radically for a couple of years.  That’ll mean no vacations, no splurging on any unnecessary things, and living a very simple existence.

While taking this approach is not a lot of fun, it is the most effective for paying off your student loan completely and once that has taken place you’ll feel a huge sense of release and freedom.  Plus, all the sudden you’ll have all this extra money, some of which you can put towards fun and enjoyment, and some of which you can put towards your savings, as now you’ll have learned how to really budget your money.

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