Ask The Money Coach

Posts Tagged ‘Student Loans’

Unfortunately, student loans aren’t like mortgage debt. You can’t simply “walk away” from student loans — at least not without very, very severe consequences, and not without those loans haunting you, literally, for the rest of your life. You see, student loans have no “statute of limitations.” So your lenders (whether private lenders or the federal government) can come after you and/or your daughter forever to try to collect. Read this article on how to pay student loans fast, and the links on these posts on student loans too, for some ideas about how to eliminate that student loan debt.

It’s great that you are thinking of your daughter’s financial future. That shows that you are a conscientious and loving mom – two traits I’m sure your child will appreciate (if not now, then certainly down the road). Why not use that gift money wisely by putting it into a college savings account to help pay for future educational expenses? Open a 529 Plan in order to reduce the amount of cash you’ll have to pay later toward tuition, room and board and other college costs. A 529 Plan is a state-sponsored college savings program. It’s a great ways to save for college because the money is put into mutual funds that grow over time. What’s more, you can get tax deductions for contributing to a 529 Plan in some states. That money your daughter gets for her birthdays and holidays will also help reduce the need to take out college loans.  Learn everything you need to know about 529 Plans at www.SavingforCollege.com.

Since you are now working as a police officer, your best option may be to investigate whether you will qualify for student loan forgiveness. This is granted to certain individuals who work in public service fields. To be specific, look into the debt-forgiveness provisions of the College Cost Reduction and Access Act, which became effective July 1, 2008. Its purpose is to help eliminate the student loan burden of public services employees, ranging from school teachers and social workers to fire fighters and police officers like yourself.

I don’t know many key facts about your situation, like whether or not you had federal loans or private loans, the exact total of all your college loans, and how long you may have been paying on them in the past. Nor do I have any idea about your income and expenses, or how long ago it was that you filed for bankruptcy protection. So it’s hard for me to give you more individualized guidance. In any event, you can get additional information and advice about your
loans online from the federal government at: www.studentaid.ed.gov. Also, even though Sallie Mae appears to have told you that you can’t consolidate, I wouldn’t rely solely on their word. To find out if you are eligible for a federal direct consolidation loan (which would also help you qualify for loan forgiveness) call the Department of Education at 800-557-7392 or visit their loan consolidation page at: www.loanconsolidation.ed.gov.

Here is a clip from an interview I did with ABC News where I explain the differences between good debt and bad debt. If you don’t have time to watch this video, here is a short summary:

- Mortgage Debt: Good Debt
* It’s tax deductible
* Homes can appreciate
* Real estate ownership can build wealth

- Credit Card Debt: Bad Debt
* It’s not tax deductible
* Has Higher Interest Rates
* Can Hurt Your Credit Rating

- Student Loan Debt: Good Debt
* May be tax deductible
* Carries Low Interest Rates
* Can Boost Earnings Power

- Auto Loan Debt: Bad Debt
* Is Often Ego-Driven
* Cars Depreciate Immediately
* Loans Outlast Warranty or Value (explanation: some people pay on cars for 5 to 7 years, long after their warranty has expired and sometimes after a car has outlived its usefulness)

- Wedding Debt: Bad Debt
* Emotionally Driven
* Can Limit Future Options (Like buying a home)
* Is Created for a Single Day

I know those student loans seem overwhelming right now, especially given your modest salary. But there are some steps you can take to improve your situation.

Start by going through the process of rehabilitating your student loans to clear up your student loan default. Read this article which explains everything you need to know about fixing defaulted student loans.

askthemoneycoach.com/2010/02/i-have-a-student-loan-with-a-company-what-can-i-do-to-keep-this-company-from-garnishing-my-check-and-taking-my-federal-and-state-taxes/

Also read this post about smart ways to pay off student loans.

askthemoneycoach.com/2010/01/i-am-24-years-old-and-have-about-63000-in-debt-most-of-it-is-student-loans-but-3000-is-not-how-do-i-write-letters-to-get-rid-of-this-debt/

Both of these items will give you great ideas about how to best tackle that student loan debt.