The American dream for many families is to see their child grow up and go to college, so they can get a good paying steady, and successful job when they graduate, but what do they do with the debt they have when they graduate. That very dream for many families has turned into an economic nightmare due to high monthly payments and interest rates.
Unfortunately, these days college is so expensive that parents who take loans out to pay for their children’s education will be paying those loans with no end in sight for years to come. In our current economic situation, many families have been given a reprieve from making the high monthly payments due to the Covid-19 epidemic. The current freeze on many student loans across the country is a great time to plan and budget for future payments when they start up again.
Not only has tuition been raised to an alarmingly high amount, but interest rates on student loans have become unreasonable. For families dealing with these costs, making the payments and keeping to a budget without constant stress and worry is almost impossible. Families are taking on this burden long-term to pay off the student loans if they can only make the minimum payment each month.
The monthly payments are also usually very high and make it impossible for families on a fixed budget to pay more than the minimum at any time. It is a problematic situation that needs to be approached in a way that will solve the long-term debt issue, so students can get the education they need without the long-term family burden of having to pay them off.
So how do you plan to budget for these payments before they start coming? When looking to set up a budget that works for you and your family, it is essential to look at how much income you have coming in and how much you have going out each month. Make a list of all your bills and expenses, so you know that you’re not overspending! Once you know what your bills are, look at the due dates for each, and that’s how you can decide when the payments for each bill should go out.
If your family lives paycheck to paycheck as many families do, it helps to schedule the payments to go out the day you get paid, so the money will always be there! When you have a large payment, such as a loan or mortgage payment, it helps to break the amount you are paying up over multiple checks. You can set it aside in a separate bank account or labeled envelopes if you save cash for bills.
How Do You Calculate How To Break Up The Payment?
-You and your spouse are paid twice a month, and your bills are combined, so you pay them together.
(-4 paychecks monthly, 2 each)
-Your child’s loan payment is $800, and it’s due on June 30th.
-Starting on your May 30th check, you should each set aside $200.
-May 30th- $200 (you)
-May 30th- $200 (spouse)
-June 15th- $ 200 (you)
-June 15th- $200 (spouse)
-Next, keep those funds separate until you pay the bill and do this every month! This way, you don’t get caught with $800 in one paycheck. It makes the large payments much more manageable. Being able to plan this way is also why it is important to plan your budget at least a month ahead of time!
Depending on your situation, there are other options you can plan to help with the loan situation as well! Planning ahead is always the key! Budgeting is a great way to manage your payments, but there are ways to make your payments lower if you are budgeting, and they are still too high!
Pay The Interest While It Is Accruing, And Your Child Is Still A Student:
When you take out your child’s loans, you don’t want to make the same mistake families make and not think about them until your child graduates.
You would think you’re giving yourself extra time not to have any payments, which is true, but not making payments while your child is still a student will cost you more money over time, and it’s not worth it! It all goes back to planning! Planning this way is a lot more than a month ahead, but the money you will save interest will make it worth it when your child graduates and the full interest baring payments come due after graduation!
Take a look at your budget to decide how much you can spend each month while your child is still a student. If you can make the full interest payment, that is even better! The more you pay before, the lower your payments will be after he/she graduates. Paying ahead will stop the interest from accruing over the period when he/she is still in school. Planning takes a lot of money off the final number, and the amount you will be paying will end up being lower because only the principal amount will add up until he/she graduates.
Negotiate The Payment Amount Or Consolidate Debt Payments:
Unfortunately, if you have federal loans, you can’t consolidate your child’s student loans, but you call and negotiate your monthly payment. If the amount banks are asking for is more than you can afford in your budget, banks will often work with you to bring the payment down to a reasonable number as long as the loan is in good standing. In the end, they would always prefer payment be made every month to keep the account out of collections and in good standing. You have the upper hand, so make sure to use it!
A consolidation loan is an excellent option for you if you want to apply for a lower interest rate and the monthly payment on your child’s private student loans. There is no guarantee that you will qualify for a lower interest rate and payment, but it doesn’t hurt to try! If your credit is in good standing and you make regular payments on time, you should have no problem consolidating, and there is very little downside to lower payments and less interest!
Apply For A Deferment:
In the current economic situation with the Covid-19 pandemic, deferments have already been put in place for families with federal loans, as well as for many families with private loans. During other times, you may have to apply for a deferment. If the payments come in and you are in a situation where you can’t pay them, it is better to apply for a deferment than to let the payments go into collections.
You do not want your loans to go into collections. Setting this up will delay the payments without hurting your credit, and you won’t have to worry about making the payments again until the deferment period is over. At that point, hopefully, you will be in a better financial situation, and you will be able to budget for the payments.
Dealing With Loans That Have Gone Into Collections
If you have private loans that have gone into collections, the amount can be negotiated into a settlement. Call the debt collectors directly to arrange your settlement amount and set up a new, smaller payment. If you don’t feel comfortable negotiating yourself, you can hire a company that can help and does the negotiating for you. There is always an answer to help families get out of debt, depending on their situation.