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Buying a Home with Student Loan Debt

Managing Your Student Loan Debt

It’s 2016 and student loan debt in the U.S. is sitting at a staggering $1.3 trillion. That total is comprised of about 43.3 million borrowers. With that many Americans holding a student loan balance, one might assume that borrowers are educated about all things student loans so that they don’t make critical mistakes with their finances. Unfortunately, that is not the case.

On average, over 40% of borrowers aren’t making their student loan payments, and about 3.6 million people have defaulted on their loans; that’s a total of $56 billion in student loan debt.

As many are aware, defaulted loans have significant effects on your credit, making it extremely difficult to receive a loan, purchase a car or obtain a mortgage. The negative impact is not only financially crippling, but extremely stressful. Constantly worrying about ruined credit or garnished wages can be quite depressing.

If you carry a student loan balance check out this list of dos and don’ts so you don’t end up making a life altering mistake.

Deferment vs. Default

These are two terms you don’t want to mistake. A default is a failure to fulfill your financial obligation to an institution, but a deferment is something totally different.

Deferring your student loans, or getting permission to avoid payments for a specific set of circumstances, can give you some breathing room if you’re struggling with unemployment or other types of economic hardships. A forbearance is a similar type of loan relief only unlike deferments in which interest only accrues on unsubsidized loans, with a forbearance interest accrues on all loans.

Getting a deferment or forbearance will not cause damage to your credit score, although they will be noted on your credit report. A default, however, will cause your score to take a major hit.


There are many types of repayment strategies and plans offered for federal student loans that can help you with making your student loan payments. Income-based and pay as you earn plans are particularly popular and can help you avoid high monthly payments.

The act of making a plan to pay off your debt alone increases your odds of not defaulting and paying off your loans. There’s something to be said about the sage advice “those who fail to plan, plan to fail.”  If you haven’t already, sit down and strategize a 3-to 5-year plan detailing how you can pay off your debt.

Don’t Be Duped 

If it seems too good to be true, it probably is. Debt elimination, advanced fee and even some consolidation programs aren’t always what they claim to be. Scammers use student’s vulnerability against them in order to make a profit. Any forgiveness or consolidation programs should be well researched to ensure that they are reputable.

Check out our post “Growing debt for new grads”

There is no hard and fast rule on what the best course of action is to take when managing your student loans. The best things you can do are stay educated, look at all of your options, and make the best decisions that work best for you and your financial being.

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