Avoid getting crushed with student loan debt during the pandemic
While universities and colleges are struggling to decide whether to reopen for a fall semester amid the coronavirus pandemic, many Americans are American question the value of a college degree. College is more expensive than ever. Still, many campuses can remain closed, forcing millions of students to take courses online.
A 2020 high school graduate could be faced $ 37,200 in credit after completing four years of college, according to a new NerdWallet analysis of data from the National Center for Education Statistics. It’s no wonder that nearly 44 million Americans are collectively plagued by $ 1.6 trillion in student loan debt.
The situation has gotten tougher since the pandemic began, as millions of Americans are unemployed and unable to repay their growing debts. Fortunately, the federal government has offered support under the CARES Act. Federal student loans offered by the US Department of Education have been suspended until September 30th political standstill makes it uncertain whether this will be extended.
However, individuals with private student loans must repay their loans. Tara Falcone, certified financial planner and founder of ReisUP, gives tips on how to deal with the financial burden.
1. Pay personal student loans first
This is important because “[lenders] are still moving in, so be sure to make those loan payments if you can afford them, “says Falcone. Failure to do so will have a negative impact on your credit score and hurt you in the long run. warns them.
2. Refinance if you can
With Interest rates near record lowsAlso, now is a good time to refinance your personal loans. However, not everyone will be able to refinance. Those with good credit ratings, 700 and above, and steady income are most likely to be eligible.
3. Be one step ahead of the curve with your federal loan
Since the federal loans are condoned, Falcone advises that people still try to make payments when they can. “If your situation has not changed too much in the last few months, keep paying back your federal loans. Your contributions flow directly into the principal and ultimately save interest.”
If you’re struggling to keep up with payments, Falcone advises that people start cutting expenses where they can. “You don’t want to be late because it hurts your creditworthiness. Try to protect it by avoiding unnecessary expenses.”
4. Look for credit programs
Financial planning for the future
For millennials with college debt starting families, long-term financial planning is key. Despite their challenges, they must find a way to save for the future of their children. The last thing they want is for the next generation to face the same financial burden as them.
Nobody knows if college will be more expensive in 20 years, especially now that higher education could be changed forever.
Parents who want to take the pressure off their children have a few options, but they must first decide how much they want to fund, says Falcone. “Will it be half of the tuition and the other half of the students? Will it be the entire school? Parents have to choose and set a savings target.”
A 529 savings plan is the most popular option. The two main advantages of the 529 are that they offer tax-free growth and tax-free withdrawals for qualified education expenses such as tuition, fees, and books. However, if the contributions are not used for qualifying education expenses, you will have to pay income tax and a 10% penalty on your winnings.
Each state offers a 529 plan, and residents are not limited to their home state’s 529 as investment options, fees, and tax benefits vary between each state’s plans.
“When purchasing a 529, consider general account fees, expense ratios within the account, and the type of fund that best suits your needs,” says Falcone. “You want to do your homework to find a plan with low fees, high returns.”
It’s also important to have peace of mind with a 529 plan. If market fluctuations are keeping you up at night, it might be better to look for other options.
Americans currently have $ 371.5 billion saved on 14.25 million 529 plans, according to the College Savings Plan Network.
There are other options that can be used as a savings vehicle on study costs. For high-income parents, a backdoor Roth IRA can be a great option, says Falcone. A backdoor Roth IRA uses a loophole that allows people to convert money into a Roth IRA in a traditional IRA. You pay some taxes, but your money grows tax-free from then on.