Following my recent post on how to ease your student loan burden, a reader wrote in asking for advice on how to better manage her private student loans, which are a bigger annoyance in some ways than federal loans.

           Dear Farnoosh,

I was hoping you would have some advice for people like me who have about 50K in private student loans. Yes I know, it’s crazy. My monthly payments are almost $500 a month (that could have been a really nice savings account) but I’m BARELY making the minimum payments. Please, please, please tell me there is something I can do to help my newly engaged, looking to buy a house, then get married but have no money-self.

P.S. This was all acquired from my culinary degree, which coincidentally the school from which I graduated no longer has a culinary program!!

Greatly Appreciated, Nicole

Dear Nicole,

To answer your question, there is something you can do. In fact, there are several things you can do. But before I give you advice, I need you to accept the following: This debt is only your responsibility and you must make paying it down a top priority. Realize that at the end of the day, unfortunately, no one is obligated to help you ease this burden. I know you’re frustrated and regret taking on this debt, but if you want to turn this ship around you need to take control of the situation and raise your commitment level to these loans. Otherwise you risk putting a great deal more at risk, including your ability to afford a wedding and own a home.

Here’s my honest advice, which has less to do with actually modifying your loans and more to do with modifying your lifestyle and making some key changes in your income and budget. Bottom line: No one cares more about your financial situation than you.

Boost income. Since you can barely make the minimum payments, it’s fair to say that you have an income problem. You have a $500-a-month dilemma. So what can you do in your spare time to bring in that money? With your culinary degree can you cater a couple of extra parties a month? Host private cooking classes? What else can you easily and quickly do? Babysit? Tutor? Freelance food and recipe articles? Embrace the fact that you’re young and educated. The job market is rough right now but by taking on an entrepreneurial spirit you can find a way to add a revenue stream or two.

Reduce spending. While you’re looking for ways to make money, take a long and hard look at your spending. What’s coming in and what’s going out? Why are you barely able to make the minimum on your student loans? What’s eating up your income on a monthly basis? It may not be one category of spending. It could be a collection of expenses from eating out to your rent to your gym membership to your cable bill. You need to make some adjustments. Substituting your gym membership, for example, for free runs in the park or free online workout classes, can save you $75 a month right there. This probably isn’t the advice you wanted to hear, but it’s the one sure-fire way you can personally take control of the situation.

Speak with your lender. If you haven’t done so already, it may be worth speaking to your lender about any alternatives to the current loan program you are in. Is there a way to stretch the repayment period? Or consolidate your loans to one loan with a reduced interest rate? You won’t know unless you ask.

Don’t miss any payments. The biggest danger of all is falling behind. I’ve seen scenarios where a $10,000 private loan balloons to $30,000 because of late or totally neglected monthly payments. If all you can afford is the monthly minimum right now, then stick with the minimum. Once you start making more money and reduce your spending you’ll have extra savings to play. At that point, put more money toward the principal of the loan.

Following my recent post on how to ease your student loan burden, a reader wrote in asking for advice on how to better manage her private student loans, which are a bigger annoyance in some ways than federal loans.

           Dear Farnoosh,

I was hoping you would have some advice for people like me who have about 50K in private student loans. Yes I know, it’s crazy. My monthly payments are almost $500 a month (that could have been a really nice savings account) but I’m BARELY making the minimum payments. Please, please, please tell me there is something I can do to help my newly engaged, looking to buy a house, then get married but have no money-self.

P.S. This was all acquired from my culinary degree, which coincidentally the school from which I graduated no longer has a culinary program!!

Greatly Appreciated, Nicole

Dear Nicole,

To answer your question, there is something you can do. In fact, there are several things you can do. But before I give you advice, I need you to accept the following: This debt is only your responsibility and you must make paying it down a top priority. Realize that at the end of the day, unfortunately, no one is obligated to help you ease this burden. I know you’re frustrated and regret taking on this debt, but if you want to turn this ship around you need to take control of the situation and raise your commitment level to these loans. Otherwise you risk putting a great deal more at risk, including your ability to afford a wedding and own a home.

Here’s my honest advice, which has less to do with actually modifying your loans and more to do with modifying your lifestyle and making some key changes in your income and budget. Bottom line: No one cares more about your financial situation than you.

Boost income. Since you can barely make the minimum payments, it’s fair to say that you have an income problem. You have a $500-a-month dilemma. So what can you do in your spare time to bring in that money? With your culinary degree can you cater a couple of extra parties a month? Host private cooking classes? What else can you easily and quickly do? Babysit? Tutor? Freelance food and recipe articles? Embrace the fact that you’re young and educated. The job market is rough right now but by taking on an entrepreneurial spirit you can find a way to add a revenue stream or two.

Reduce spending. While you’re looking for ways to make money, take a long and hard look at your spending. What’s coming in and what’s going out? Why are you barely able to make the minimum on your student loans? What’s eating up your income on a monthly basis? It may not be one category of spending. It could be a collection of expenses from eating out to your rent to your gym membership to your cable bill. You need to make some adjustments. Substituting your gym membership, for example, for free runs in the park or free online workout classes, can save you $75 a month right there. This probably isn’t the advice you wanted to hear, but it’s the one sure-fire way you can personally take control of the situation.

Speak with your lender. If you haven’t done so already, it may be worth speaking to your lender about any alternatives to the current loan program you are in. Is there a way to stretch the repayment period? Or consolidate your loans to one loan with a reduced interest rate? You won’t know unless you ask.

Don’t miss any payments. The biggest danger of all is falling behind. I’ve seen scenarios where a $10,000 private loan balloons to $30,000 because of late or totally neglected monthly payments. If all you can afford is the monthly minimum right now, then stick with the minimum. Once you start making more money and reduce your spending you’ll have extra savings to play. At that point, put more money toward the principal of the loan.

 

A friend of mine just graduated from business school with six-figure loans totaling just over $1,000 in monthly payments. That’s more than his car loan, more than his rent, more than his monthly Visa bill.

At present, student loan debt has eclipsed credit card debt. According to a Wall Street Journal report, outstanding student loans – both private and public – amount to nearly $830 million. The report cites Mark Kantrowitz, the publisher of Finaid.org and Fastweb.com. As a borrower, if you fall into that category, there’s no doubt that you may need help, fast.

Consider this advice:

Pay Down the Principal. The best way to get out of any kind of debt quickly is to pay it off aggressively and chop down the principal. When you boost income (which I’ll discuss how below) or get a lump sum of cash for your birthday or year-end bonus, pre-commit to putting at least 50% of that windfall toward your debt. Make sure you direct that extra payment toward the principal, not the interest (a common mistake).

Stay the Course. If you can only afford the minimum payment, don’t worry. More importantly, don’t ever miss a student loan payment since there is no statute of limitations on how far lenders can go to retrieve your payments, including garnishing your wages or taking money out of your tax returns. This can also put a big dent in your credit score and credit report.

Peg Payment to Income. If you have federal student loans, you may qualify for Income-Based Repayment (IBR), a program that helps borrowers cap their loan payments based on their income and family size. For most qualifying borrowers, IBR loan payments will amount to less than 10% of their income. The program will also forgive any remaining student loan debt after 25 years of making payments.

Work in Public Service. The Department of Education has also begun a program called Public Service Loan Forgiveness (PSLF), again, strictly for federal loan borrowers. If you work full-time for a “public service” employer such as a non-profit, AmeriCorps, PeaceCorps, the military or a government agency, PLSF may forgive your remaining debt after 10 years of employment and making on-time payments. During this time the IBR plan can help make your loan payments affordable.

Get a Gig. If you can’t get a raise at work, try to boost your income outside your 9 to 5 with part-time or freelance work, like child care, pet sitting, adult care, home care and tutoring (try sittercity.com or sitters.com) to online technical work (visit elance.com and freelanceswitch.com) to selling goods online (visit etsy.com, ebay.com and gazelle.com). Take it from me: I babysat, bird-sat and wrote freelance articles while working a full-time job out of graduate school, which helped me pay down my student loans in 3 years, instead of 10.

Shorten the Term. See if the bank will reduce the term or repayment period on your student loan. You’ll get out of debt faster but, of course, you’ll need to shore up more money each month. Or talk to your lender to see if there’s an alternative program that can help you keep your head above water temporarily.

Deduct It. You can deduct up to $2,500 in student loan interest from your taxable income and any savings you make can go toward paying down your debt.

Transfer Debt to a Personal Loan. If you get an offer to open a private loan with a lower rate than your existing student loan, consider transferring the debt. This is easier said than done (which is why it’s my last tip). Transferring debt to a loan product with a lower rate will lower your monthly minimums but you’ll need superb credit to qualify. But don’t fall into the trap of paying the lower monthly minimum or you may stretch the life of the loan for several more years, paying more interest in the long run. Psychologically this may not be the best solution for some folks.

What is the second largest purchase you'll ever make? Most of you probably said your car. It makes sense though. Your home is probably going to be the largest and a car is the second largest. That would be true if you didn't pay for college.

College, even a modestly priced college, is going to cost you much more than a car. Student loan debt used to pay for school has spiraled completely out of control. According to the Wall Street Journal student loan debt has now passed credit card debt to the tune of $830 billion. This debt is less expensive than credit card debt but is the closest thing we have to a debtor's prison because you can't ignore it, settle it (yet) or discharge it. Point being, you're going to pay it.

Opinions on the topic are going to vary. Some believe that college is a much needed resume filler. Others believe you can do just as good with street smarts and motivation. And still others believe that just because you CAN go to an expensive school does not mean that you HAVE to go to an expensive school.

Whatever your perspective is on the issue, one thing is clear: If you choose to get into a lot of student loan debt, it's a smart move to at least choose a school and major where there's a demonstrated track record of ROI. Law, medicine, nursing and engineering are probably safe bets. Liberal arts degrees (like mine) are fine but a $60,000 price tag, which is really $100,000 after interest, doesn't make a lot of sense unless you can pay out of pocket or fund it using grants or scholarships or mommy and daddy.

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

For those truly drowning in student loans, there are few lifelines. It’s very hard to discharge student loans in bankruptcy, and that means lenders have little incentive to negotiate with borrowers. In fact, in his excellent book, The Student Loan Scam, activist Alan Collinge tells the stories of borrowers who have found the only way to escape from crushing student loans was to leave the country!

If you have a lot of student loan debt, I don't have any easy answers for you. But there is at least a glimmer of hope for a small number of borrowers in the form of student loan forgiveness programs. Digging out all the details of these programs can be a full-time job itself, but here a few ways you may be able to get student loan debts wiped out:

Get a Public Service Job. If you work for a non-profit organization, Americorps, the Peace Corps, or are employed by the federal government, a state government, local government, or tribal government (including the military and public schools and colleges) you may be eligible for the Income Based Repayment Program. If you qualify, your federal student loan payments can be reduced based on your income, and any balance left at the end of ten years of payments under the program will be wiped out.

Join the Military. On a recent trip to DC, I noticed a huge banner in the GW Metro Station – next to George Washington University Medical Center – promoting student loan forgiveness for doctors who join the military. Student loan repayment programs can pay back as much as $65,000 in qualified student loans for those who enlist. Details vary widely by the branch of service you join, so think ahead if you are considering joining the military and hope to get student loans forgiven.

Become a Research Scientist.  National Institutes of Health (NIH) Loan Repayment Programs (LRPs) help researchers and scientists repay up to $35,000 of their qualified student loan debt each year. This includes researchers at NIH as well as others in nonprofits and universities.

Die. This sounds like an absolutely horrible way to end this post, but there is a trap I believe is important to point out. When a student loan borrower dies (or becomes permanently disabled), her federal student loan balances will be forgiven. But that’s not true with private student loans when there is a cosigner. Under those tragic circumstances, the cosigner may still have to repay those private student loans. Proposed legislation, The Christopher Bryski Student Loan Protection Act, would require disclosure of this fact, but wouldn’t change the fact that these loans survive when borrowers don't.

Check out more student loan forgiveness programs at FinAid.com. If you do apply, make sure you keep a file for all your paperwork. One borrower on the Credit.com forums recently shared how her credit score tanked when the paperwork for her loan forgiveness program went astray.

But that’s another story. 

Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress: Real Life Solutions for Your Credit Crisis.