Just because you can delay student loan repayment doesn’t mean you should

Last week Barbara laid out a number of options for borrowers to extend or postpone student loan repayment — important information for new grads to have as they enter the real world. This is a topic that we get lots of questions on — probably second only to how to lower student loan interest rates.

But I’m going to play devil’s advocate Click here to learn about third-party website links here, because I think it’s important for you to consider another perspective. I’m going to tell you not to take advantage of these options unless you absolutely have to.

Michelle Singletary, one of my most favorite and down-to-earth personal finance columnists with The Washington Post Click here to learn about third-party website links, had this to say about extended student loan repayment in a piece published on May 17, 2009:

But can I give you some hard but well-meaning advice if you’re one of the many graduates saddled with student loans?

Instead of immediately opting for repayment plans that will stretch your payments out until you’re in middle age, try to find other ways to handle this debt.

I know these are tough times. Nonetheless start your loan repayment as soon as possible, even if it means taking a second job, or a roommate (or two or three), or yes, dare I say, moving back home for several years.

You could handle this debt if you delay going on to graduate school, which would only pile on even more debt. If you are going to have trouble finding a job to make the monthly payments on your undergraduate debt, how in the world are you going to find employment to service tens of thousands more as a result of an advanced degree? Trust me, an advanced degree doesn’t guarantee a big salary.

You don’t get to buy a new car, an upgraded wardrobe, waste your money on liquor at happy hours, or take vacations until this debt is extinguished.

And don’t look at me with that face. Only after you’ve exhaustively scanned your budget and cut every possible expense (such as deleting the texting option on your mobile phone) should you consider extended repayment options.

Tough love from Michelle, but her advice is spot-on. Here’s how she ends her column:

I’ve met an incredible number of people — too many — who really could have paid their student loans under the standard payback period but because they didn’t want to live frugally, saw their loan balances jump significantly over the years.

If you truly can’t afford to fully pay what you owe, take advantage of the extra breathing room. But remember the more you delay, the more you may pay.

Something to think about.

This entry was posted in Budgeting, Debt, Financial education, Interest rates, Money management, Paying, Post-college, Preparing, Student loans, Wells Fargo Bank. Bookmark the permalink.

8 Responses to Just because you can delay student loan repayment doesn’t mean you should

  1. Anonymous says:

    What is the Highest Interset rate for Wells Fargo private education loan LIBOR + ?
    the lowest is LIBOR +4.75

  2. Staci Schiller says:

    Anonymous, Wells Fargo private student loan interest rates are based on the Prime Rate instead of LIBOR (which stands for London Interbank Offered Rate).

    To see all of the Wells Fargo student loan interest rates and monthly payment examples, please visit this page: wfefs.wellsfargo.com/jump/rates.html

    Hope that helps!

  3. Anonymous says:

    My parents have bad credit and I have no credit.. and my only cosigner has a credit score of 700 something but only makes 29000.00 a year.. please help me! I can’t find a loan.. Editor’s note: We edited this comment in accordance with our Comment Guidelines. Nothing else has been changed or altered in any way.

    • Staci Schiller says:

      Anonymous, I sent you an email response as well. Have you exhausted all of your options for grants, scholarships, and federal student loans before considering a private student loan? Those options are lower-cost sources of funding and don’t require a cosigner.

      Also, if your parents apply for a Federal PLUS loan for parents and are denied, you may be eligible for additional unsubsidized Federal Stafford Loan funds. Ask the financial aid office at your school for more information.

      For more information about what Wells Fargo looks for in a cosigner, visit wellsfargo.com/student/cosign

      Hope that helps. Please let us know if you have additional questions.

    • janis says:

      since my husband passed a year ago, I have been working but my credit score is not as good as it once was. My daughter has ayear left and needs a private loan for her rent and expenses forthe rest of the year,about 5,000. What would be a decent loan for
      her without me co-signing.

  4. Anonymous says:

    My son lives in China and needs to start making payments on his Sallie Mae loan. What is the best way to make international payments?

    • Barbara Raus says:

      Anonymous – most lenders offer a variety of payment options. Your son could consider making automatic payments or doing so through a bill pay service. Best bet is to contact the lender and see what they’d recommend based on their systems.

The Student LoanDown

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