Happy New Year! I hope everyone had a wonderful holiday season. For better of for worse, it’s the time of year for New Year’s resolutions. We’re all going to exercise more, eat better, and call our long-distance relatives more frequently, right? (Well, for at least a month or two).
But financial New Year’s resolutions can be just as valuable as the more “cliché” promises we are used to hearing in the beginning of January. And I encourage everyone to consider some student loan resolutions to help manage your student loan debt more effectively. Here’s my list of some student loan New Year’s resolutions that I hope you will consider.
Review Your Student Loan Repayment Strategy
It can be easy to just write a check each month to your student loan servicer (or set up automatic payments) and just forget about it. And if you’re struggling with your payments, you might assume that you are simply stuck with whatever amount you are required to pay. But this isn’t always true, and I’m often surprised by clients who come into my office assuming that they have no alternative options when, in fact, they do.
Now is as good a time as any to review your student loan repayment strategy. Are you on the best repayment plan right now based on your financial goals and circumstances? Should you consider student loan consolidation or refinancing? If you have extra income (say, through a year-end bonus or holiday gifts), should you put it towards your student loans or another financial goal? If you got a year-end raise, should you be targeting a specific student loan for accelerated payoff, or putting extra contributions into retirement? Take this opportunity to reevaluate your entire student loan repayment approach.
Pull Your Credit Reports
Your credit report is an incredibly important window into how financial institutions may view your financial well-being. And increasingly, it’s not just banks and lenders who are looking at your credit report – it’s also employers and landlords. Credit reporting errors are unfortunately quite common, and identity theft is also an ever-increasing threat. Too often, people don’t find out about an erroneously-reported late student loan payment, or a credit card linked to you that you never took out, until you’ve almost got that new car, new apartment, or new job – and by then it’s too late, because now you don’t have enough time to fix the problem.
Under the Fair Credit Reporting Act (FCRA), consumers are entitled to one free credit report each year from the three major credit bureaus – Experian, Equifax, and TransUnion. Take advantage of this federal legal right. Review your credit reports carefully, and be sure to dispute and challenge anything that is inaccurate.
Resolve Student Loan Defaults
Everyone has fallen on hard times at some point in their lives. Being in default on your student loans is nothing to be ashamed of. But ignoring it is probably only going to make things worse.
The good news is that there are options. Federal law provides clear default resolution options for federal student loan borrowers – if you are eligible (and many people are), you can restore your federal student loans to good standing and access an affordable repayment plan. While the options for dealing with private student loan defaults are more limited, there is greater flexibility in negotiating a settlement or raising defenses to collections actions. The point is, you may not know your options, especially if things are mostly quiet on the debt collection front for the time being. But this is unlikely to last, and you could be targeted for wage garnishment or a collections lawsuit at any time. Don’t be caught unprepared – now is the time to get out in front of this and start working on a solution.
Save Your Student Loan Records
As you probably know, it will take years – maybe even decades – to repay your student loans. Moreover, the servicers and companies involved in your student loans right now may not be the same entities that you will deal with in a few years. And the unfortunate truth is that student loan account records do not always transition smoothly from one company to another.
Take this opportunity to save your payment histories and your recent correspondence from your servicers – you never know when you may need to access it. I can tell you from experience that if there is a subsequent problem with your student loans that must be disputed, my clients who have kept good records generally have a better chance of success than the clients who have not. However you go about doing it – whether you print everything out and keep hard copies, or you upload your documents to a secure cloud storage system – you may thank yourself later.
Start a Student Loan Emergency Savings Plan
Student loans have programs available for emergencies and times of economic hardship. Federal student loans have generous deferment and forbearance options, as well as income-driven repayment if you can no longer afford your regular standard payment amounts. Private student loans have fewer options, with fairly restrictive forbearance and typically only a few short-term temporary payment reduction programs.
Things may be going well for you now, but bad or unexpected things happen. Most of the hardship programs available to student loan borrowers are time-limited, and so they should only be used in times of true emergencies. I generally think that it’s preferable to be prepared for a short-term emergency so that you don’t have to use up your allotted payment postponement or reduction options. Calculate how much your monthly student loan payments are, and make it a goal for this year to save up at least that amount for use in a future emergency. If you can save up two or three month’s worth of student loan payments, even better. By having a student loan emergency savings fund
available, you can tap into those funds to stay current on your student loans while preserving your deferment, forbearance, and modification options for another day.
