Student loans are a hot topic. The rising cost of college has a lot of people asking how much borrowing is too much.
And the massive amount of outstanding student loans ($1.2 trillion and counting, according to the Consumer Financial Protection Bureau) leaves us wondering whether we’re teetering on the verge of the next crisis.
But those big questions do nothing for the recent graduate faced with a pile of loans and confused about the nuts and bolts of understanding and repaying them.
Luckily, Reyna Gobel’s CliffsNotes Graduation Debt: How to Manage Student Loans and Live Your Life covers all the details in a witty, readable style.
Aside from plenty of actionable advice, the book includes case studies of real graduates who got out of debt or are making progress.
[Editors note: Reyna Gobel is a former MintLife contributor]
An all-new second edition is out now as an ebook (a perfect instant gift for the senior or new grad in your family), and is coming in paperback in April.
Gobel spoke recently with MintLife’s Matthew Amster-Burton.
MintLife: Who should read this book, and why do we need a whole book on paying back student loans? Isn’t it just a matter of getting the bill and sending the check?
Gobel: Because most people don’t know their options. It’s such a high percentage of people who are in default. I was in default.
Twenty percent of my generation was in default at one point in their student loans. But it’s so easy to recover from. In a few payments, you can get it off your credit report.
There are so many little details that are not understood. A quarter of people quality for public service loan forgiveness, if you’re on certain repayment plans after ten years.
So not having the information can cost you thousands, cost you your credit, or cost you a federal job.
MintLife: What are some of the reasons so many people get into student loan trouble?
Gobel: I think the first one is really being scared. It sounds like a silly thing, but when you’re scared of something or you feel overwhelmed, you’re not likely to take the best action.
And you have to come to the realization, if you have $20,000, $60,000, or even $100,000 in student loan debt, it’s there, it’s going to be there for a while. But you have so many repayment options.
There’s so many ways that if you get into financial trouble in the future you can take a break, or switch repayment plans, or get a payment sometimes as low as zero or $50.
You don’t want to be scared, you want to be proactive and say, “This is how I need to plan for my student loans.”
MintLife: And I learned from your book that some of those options, like default rehab and Pay as you Earn, have improved just in the last couple of years.
Gobel: With default rehab, what’s really key is, if you have a loan that’s a federal loan with Sallie Mae or Great Lakes or any FFEL provider outside the Direct Loans, there is now going to be, as of July, uniform rules on your repayment.
So you can income-based default rehab that is very similar to income-based repayment.
You don’t have to think, “Gosh, I’m going to have to pay $200 or $300 a month to get this out of default.”
No, you can start your repayment plan, make I would say 9 to 10 payments, you can get it removed from your credit report, you get it back where it’s in good standing, you bump up your credit score, and you’ve made yourself eligible again for certain federal jobs.
Federal student loans have so many options that a normal loan wouldn’t. You couldn’t do this with your mortgage.
Then with Pay as You Earn, what’s improved is: Income-Based Repayment was wonderful, it’s certainly an option for people, but now the income compared to your loan has gotten so much better.
I was doing calculations yesterday, and you’d be surprised.
Someone making $100,000, if they went to a private law school and they had a lot of loans, could potentially qualify for Pay as You Earn repayment where they save a whole lot of money.
MintLife: So what’s improved is that I can make more money than under the old Income-Based Repayment and still potentially qualify for Pay as You Earn?
MintLife: Let’s talk a little bit about consolidation. The last time I looked seriously at consolidation was in the 90s, when I was getting millions of letters about them, and that was two financial crises ago.
Gobel: What a great way to tell time.
MintLife: What can consolidation do and not do for me these days?
Gobel: The one time consolidation is great and necessary is if you’re consolidating away from the old FFEL loans, the ones that were federal loans through banks, into Direct Loans, because then you qualify for Pay as You Earn.
Then you qualify potentially for public service loan forgiveness. Then consolidation is almost a necessity.
The one caution, when consolidation is not great, is: let’s say half your loans are at 3.4% and some are at 6.8%. If you’re just making one payment total, wouldn’t you like to put a little more money on that 6.8%?
So if you know you’re going to be paying off your loans early, you may want to look at: do I have scattered interest rates on my loans?
And if you aren’t going to want Pay as You Earn or public service loan forgiveness, then you really want to think about, are there loans that I want to pay off faster?
MintLife: Say I’ve read the book, and it’s helpful, but I still feel confused and scared about my student debt. Who can I talk to?
Gobel: I don’t think people use their own university resources enough. From the alma mater, there are student money management offices that can help people. I would go there.
Credit unions have financial counselors. And the other thing is, I answer every question someone sends me on Twitter. If someone follows me on Twitter and sends me a question, I will answer it.
You want to talk to your servicer, too. If you call your servicer and they don’t answer your questions, ask for a supervisor.
They’re not just there to collect a payment. They’re there to actually help you, so make sure they’re actually helping you.
MintLife: Do you think there’s a student loan crisis?
Gobel: There’s a crisis of financial education. There’s an overabundance of stories of people that have gotten into trouble with student loans.
If we don’t get the information out there that helps people, that tells them they can control the situation, we are headed for a student loan crisis.
But if we get the information out there—what payment plan options they have, what repayment breaks, how to get out of default.
We don’t have to create a crisis if we get the right information out there, and we help people and tell them there is a solution to it. Good holiday cheer, right?
This interview was edited for length.
Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.