Advising Your Students About Debt Management
Sonja McMullen, Senior Account Executive, Sallie Mae
One of the most valuable services you can provide for students is guidance on how to manage debt. That’s because the actions students take now can set a pattern for a solid financial future. Use these tips to advise your students as they begin to manage credit and debt.
Create a budget and stick to it. One of the basic tenets of smart financial management is to create a budget and live within your means. Advise your students to develop a budget that ensures that debt and other payments are made on time each month.
Many financial literacy sites offer interactive budgets to make the process easy. The budget should be revisited and adjusted periodically as various income and expense items change.
Pay credit cards in full each month. It’s easy to run up big debt by paying just the minimum on credit card balances. Encourage your students to charge only what they can afford to pay off infull each month.
Request a copy of your credit report annually and check it for errors. Most credit reports are accurate, but sometimes mistakes happen. By checking their credit report annually, your students can spot errors and avoid possible damage to their credit rating.
Make sure your student loan servicer knows how to contact you. Students should always contact their loan servicer whenever they change their street address, email address, or telephone number. By doing so, students will be alerted to changes to their loan (for example, an adjustment to the interest rate) or to their account (e.g., a fee charged for a late payment).
Understand the consequences of default. Make sure your students understand that default has serious consequences. For example, it can damage their credit rating and make it difficult toborrow in the future.
Select a student loan repayment plan that’s right for you. Some students want to pay off their loans as quickly as possible. Others may want to stretch the payments out so they’re more affordable. Advise your students to model their repayment options using an online calculator. For federal loans, students may want to consider an income-related repayment plan as a means of keeping their payments manageable.
Start out on the right foot with on-time payments. Making on-time payments on student loans and other debt can help students build and maintain a good credit rating. Get your students off on the right foot by emphasizing the importance of making on-time payments.
Sign up for automatic debit. One way to help ensure student loan and other debt payments are made on time is to sign up for automatic debit. Some lenders offer an interest rate reduction for making payments by automatic debit.
Manage your account online. Encourage your students to take control of their debt by managing their account online. Most student lenders offer easy-to-use systems that allow students to review their payment history, change repayment plans, make payments, update contact information, and more with a few clicks of a mouse.
Make interest payments while in school. Students can help avoid capitalized interest by making interest payments on their loans while they’re in school.
Consider paying a little extra each month on your debt. Paying just a few extra dollars of principal each month can go a long way toward helping students pay off their loans faster. Urge your students to make extra payments whenever possible.
Seek help at the first sign of difficulty making payments. Financial problems have a tendency to worsen if they’re not addressed promptly. Students should call their lender or servicer immediately if they are having trouble making payments.
Use deferment and forbearance as a last resort. Postponing payments can cost borrowers extra if unpaid interest is added to the loan balance. Before applying for deferment or forbearance, borrowers should work closely with their lender or servicer and consider alternatives such as switching repayment plans or consolidating their loans.
By following these tips, your students can lay the foundation for a bright financial future. And you can build a closer relationship with your students as a trusted advisor for financial literacyand debt management.
Sallie Mae (NASDAQ: SLM) is the nation’s No. 1 financial services company specializing in education. Whether college is a long way off or just around the corner, Sallie Mae turns education dreams into reality for its 25 millioncustomers. With products and services that include college savings programs, scholarship search tools, education loans, insurance, and online banking, Sallie Mae offers solutions that help families save, plan, and pay for college.Sallie Mae also provides financial services to hundreds of college campuses as well as to federal and state governments. Learn more at SallieMae.com. Commonly known as Sallie Mae, SLM Corporation and its subsidiariesare not sponsored by or agencies of the United States of America.