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Money Book for the Young, Fabulous & Broke: Making the Grade on Student Debt
March 22, 2008, 7:09 pm
Filed under: Books, Money Basics | Tags: ,

This is the fourth installment of my review of Suze Orman’s The Money Book for the Young, Fabulous & Broke. The previous installment, Give Yourself Credit, covered credit cards.

Despite the money and time involved in seeking a higher education, Orman affirms that education is an amazing investment in the long run. The increase in lifetime earnings you’ll make because of your degree(s) will go above and beyond the amount of student loan debt you carried or the price you paid upfront to go to school.

Stafford loans are the focus of chapter four, “Making the Grade on Student Debt.” Orman’s first piece of advice is to read up on the different repayment options that are available to you. Lenders will work with you to find a repayment plan that fits your needs and income. The very last thing you want to do is avoid paying the loans back. Even bankruptcy will not grant you loan forgiveness on student loans. The lenders will eventually catch up with you and you will wind up paying even more in interest than you would have if you had started to pay your loans back on time.

If you have no idea which loans you took out or need a clear record of how much you will owe, the National Student Clearinghouse is the first place you want to go. Also try the National Student Loan Data System.

It is possible to delay paying your loans if you apply for a deferment or forbearance. A disability, joining Teach for America, joining the Peace Corps, unemployment, or going back to school will grant you a deferment and you will not have to pay on your loans or the interest during that time period. A forbearance is easier to get than a deferment, but you must pay interest during your granted time.

The interest rate you pay on your student loans changes every July 1st; however, if you apply for a student loan consolidation (in which all of your loans get balled into one larger loan with one lender), your rate will remain the same year after year. Orman highly recommends consolidating in order to lock in a low interest rateif the interest rates are expected to rise. Be warned- you will no longer be eligible for a deferment or forbearance once you consolidate your loans (I’ve find some conflicting evidence on this point- perhaps it depends on your individual lender. Also, Orman’s book is a few years old, so maybe the policies have changed since then).

Many lenders offer lower interest rates if you set up automatic payments and or you consecutively pay your loans back on time. If you do get these nice breaks, you will pay the same monthly amount as before, but you will be paying more back on the principal and, therefore, cutting down the life of the loan. The government also overs a tax deduction, up to $2500, for interest paid on student loans.

I know all too well about student loan debt. I have over $20,000 in loans with Sallie Mae (Jake has about $5,000). I consolidated some of my loans while I was still in school (back when you were allowed to consolidate when you were still an active student; this is no longer) because the interest rates were expected to skyrocket. I did forfeit my grace period, but I think it was a good trade off. Two of my loans (the biggest ones) are at 4.875% and the rest are at 6.8%. If the interest rates drop back down to 4.xx%, I will probably reconsolidate to save a good amount on interest. My payments are a bit steep, but I’m plugging along. I’m considering changing my payment plan to reduce my monthly payments, but I know that if I do that, I will only wind up paying more interest in the long run. Sallie Mae does offer an interest rate reduction if you pay every payment on time for 2 or 3 years, so I’m slowly working towards that rate cut. I’m also a member of Upromise. I earn money towards my student loans by going out to eat, buying certain items at grocery and drug stores, and shopping online. Even though I don’t get huge amounts back (since I don’t spend crazy amounts of money), I really enjoy the program and highly recommend it. 

Next up for my Money Book for YF&B review is how to save money.

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2 Comments so far
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I’ve been able to defer the unsubsidized part of my consolidated loan by remaining a part-time student after graduating.

My lender has really worked with me to get the best rate’s available. They’re still way high, but over time they’ll go down.

Comment by A

I was wondering how it would work if you went back to school part-time, for say your graduate degree. Good to know that if/when I do so, my lender will probably let me defer part of my loans. Thanks for the info, A!

Comment by Sarah




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