As college graduates across the country admire their hard earned diplomas they recently received, it's hard to forget about the burdensome student loan debt plaguing many graduates. In fact, the average student loan debt upon graduation is $24,000, according to the Project on Student Debt. For those who've just graduated and have no idea how to tackle their debt, New York Times bestselling author David Bach has all the answers in his newest book, Debt Free For Life, which is a goal for students with insurmountable levels of debt. I recently spoke with David and he shared the following suggestions to eliminate debt.
1. What Types of Loans Do You Have?
It's one thing to know you have $50,000 worth of student loans, but you must dig deeper and figure out the specific types of loans you have, either government or private. Check out this overview of the different types of student loans.
According to Bach, "If you're not sure, check the paperwork: If there's any reference to a Stafford Loan, Perkins Loan, Federal Direct Loan Program or the Federal Family Education Loan Program, congratulations -- you have a government loan, which means you are eligible for a number of different repayment options."
Those repayment options are the following:
10-Year Plan: This is the default option. You make fixed payments each month for ten years and at the end of the decade, your loan is paid off and you own your diploma outright.
20-Year Plan: Although this option results in lower monthly payments since the repayment period is expanded, be prepared to pay more money in interest over the long-run.
Bach suggests the 10-year plan: "Since your goal should be to become debt free for life, the 10-year plan is generally your best option."
On the other hand, if you have private loans, things are a bit tougher, as Bach explains: "You're basically stuck with the repayment terms that you agreed to when you took the loan out."
2. Consolidate, Consolidate, Consolidate
Chances are you have several loans from different lenders. The paperwork and stress of tracking all of these loans is no easy task, which is why many students elect to consolidate their federal loans. According to Bach, consolidation combines all your obligations into one monthly payment, there is never a fee for consolidating federal loans and you can choose to extend your repayment term.
Bach offers this tip: While students with federal loans can consolidate with any lender, it is always a good idea to consolidate into the federal direct loan program. That's because there are some loan forgiveness programs that are open only to people with federal student loans.
Those nasty private loans are a different situation and cannot be consolidated with federal loans.
3. Get Familiar with Student Loan Lingo
There are a few important terms that will make managing and paying back your student loans a lot easier, which Bach outlines in Debt Free For Life: Deferment and Forbearance.
Deferment: Under deferment, you stop making payments for a certain period of time only due to special circumstances, such as financial difficulty or if you're out of work. Interest does not accrue during deferment for subsidized loans, but it does accumulate if you have unsubsidized loans.
Forbearance: If you don't qualify for deferment but are experiencing financial difficulty, you can apply for forbearance, which will temporarily postpone or reduce your payments," says Bach. Be careful: Interest accrues during forbearance, even if you have subsidized loans.
More valuable personal finance and student loan tips can be found in Debt Free For Life and on Bach's website, FinishRich.com. And if you're struggling to pay back credit card debt, check out Bach's Debt Wise program, which provides a complete plan of action on how to pay off debt and it comes with four free credit scores each year.
Scott Gamm is a student at NYU's Stern School of Business and founder of the personal finance website http://HelpSaveMyDollars.com. He has appeared on NBC's TODAY, MSNBC, Fox Business Network, Fox News, ABC News and CBS. Follow Scott on Facebook.
Follow Scott Gamm on Twitter: www.twitter.com/ScottGamm