Anna Moreno, a contributor to The Billfold, writes about what happened when she defaulted on her student loans.

It shows just how easy it is to get into that “I’ll handle it later” mentality, and how easy it is to not get a job and then face down the barrel of enormous student loan debt.

Eventually, after having her wages garnished for a year, Moreno sought out loan rehabilitation and consolidation with the Department of Education, which sounded like a completely reasonable and pleasant process.

But her story is a cautionary tale for all young people out there, even the credit-averse and the good-planners—yes, it can happen to you too.

So when you’re considering taking out student loans, follow my path to success:

1. Have a few roads you can take: that dream job after college didn’t come through? Plan a few other potential jobs with salaries that can get you debt free ASAP.
2. Backup your money: you backup your hard drive, but why don’t you backup your checking account? Work on building up your emergency fund, even if it’s only $100/month during and before college. This could make the different down the road between creditor calls and ramen dinners versus paying off debt and normal food.
3. Line up jobs now: it’s never too early to start looking for a job. Start networking and lining up potential jobs now. Reach into whatever networks you can—parents, friends, friends’ parents, any adults you trust.
4. Budget: find the absolute max you’re required to pay per month, and start budgeting to put that aside. Setup auto-pay so payments go out on-time and in-full, avoiding those pesky creditor calls, late payments, and credit score dings.

In 2007, the Public Service Loan Forgiveness program was started to encourage more recent graduates to join the public sector.

The program is unique in that it does the following:

allows public servants (like teachers, law enforcement officials, government workers, public health workers, and more) and employees at 501(c)(3) nonprofits to see the remainder of their federal student loan debt forgiven after 10 years of repayments.

However, according to the Obama administration’s 2015 budget—that has limits.

not necessarily

 

In other words, if you take federal loans to go to a very pricey liberal arts college—you won’t get all of your debt forgiven.

The budget caps that amount at $57,500. So if you still have more than that after 10 years—that’s the limit of what will be forgiven.

The PSLF lets you qualify even if you only make minimum payments (which, if you want to obtain a public sector job and your debt will be forgiven after 10 years, makes simple sense). However, due to interest rates, you may still owe nearly the same amount.

According to Boston.com:

it’s imminently possible for somebody making payments under PSLF to see their debt basically stand still or even increase over the 10 years of payments.

It remains to be seen if the proposal passes. But if it does—the incentive to get rid of student loan debt by becoming a teacher may vanish.

 

Paying down student loan debt may seem like a neverending chore.

The monthly payments, the interest charges—it becomes one more bill that seems to never go away.

But one man, Matthew Burr, figured out a way to pay off $74,000 of student loans—in just two years.

His key advice? Start paying them down right away.

If you can, don’t wait for the six-month grace period to end to make payments, advises Burr.

As soon as I got my first check, I made a payment. You’ll pay less interest if you start making payments in a hurry, and it gets you into a routine. If you’re disciplined up front, you’ll be far ahead of everybody else.

He also made multiple payments per month and paid more than the minimum payment per month, but was careful to make sure that his loan allowed that type of repayment (some loans limit the number of payments you can make per month).

Now mind you—the man is not a millionaire. The job he got right after his master’s degree earned $80,000. Instead of upgrading his entire life with a new car and electronics, he put the money right towards his loans, paying them down and cutting out luxuries.

It’s not impossible, folks. If he can do it—so can you.

 

Student loan debt is at an all time high in America—recently crossing the threshold of $1.1 trillion (with a “T”).

According to the Pew Research Center, those with student loan debt “are less wealthy than graduates without debt, less likely to have a house, and probably holding the economy back.”

First the wealth: college graduates without student loans “have about seven times more wealth than their debtor friends — or $64,700 compared to $8,700 — despite making the same income.”

Also, you can’t foreclose on student loan debt or eject it in bankruptcy—holding back individuals from contributing to the economy as a whole.

If you have a high-school graduate about to enter college or you’re looking to go back to school—the numbers show that it’s better to wait or to choose a lower-priced education. For over a decade afterwards—your wallet will thank you.

If you already have student loan debt—prioritize paying it down. If you go bankrupt, remember—other debts can be ejected. Student loan debt can’t.

The story of student loan debt neglects to mention those hardest hit.

It’s not the wealthy student who takes small loans and pays them off in full and as soon as possible.

It’s also not the poor student who can receive federal grants and aid, then cover the rest of the costs through loans.

It’s the middle class student who is squeezed the most. These students are most likely to earn just enough to not receive grants or any kind of aid, are less likely to qualify for government loans, but still require private loans to cover their costs.

Student loans, in effect, work like a bell curve, with the poorest students and the wealthiest students taking out the least.

As a result, many students who cut back on private schools, go to in-state schools and narrow down expenses are still in a position where they have to take out large student loans to cover tuition, books, and living expenses.

For example, one young woman came from a household with an income of $85,000—not shabby by any means, a disabled mother, and a dependent grandmother. She had to take out nearly $100,000 in student loans to cover four years of expenses, most of which were private loans since her family earned too much to be eligible for federal loans. Some of those private loans required payments during her college education.

Even with a $50,000 a year job after college, she found her student loan payments eating up over $1,400 per month.

Here is how she has to budget:

Moving in with my fiancé’s parents allowed me to allot my saved rent money—and then some—toward saving for the wedding. Now my readjusted monthly budget looks something like this: 45% goes toward my student loans, 40% funnels into our wedding fund, and the remaining 15% is spent on bills, gas, food and any other expenses. I pay for necessities and necessities only. I also contribute 3% to my company’s 401(k), but that comes directly out of my paycheck.

This is a story that can be told across America, where recent graduates have to defer many expenses for over a decade after graduation.

Student loan debt has become the norm instead of the exception when it comes to college graduates.

The figures may surprise you:

According to the Project on Student Debt, 71 percent of students who graduated in 2012 had student loan debt, with an average debt of $29,400.

That’s nearly 3 out of every 4 students graduating with debt average to the price of a new car.

With a struggling job market and increasing house prices, prospects aren’t looking good for graduates.

One student claims that she is unable to make the payments immediately on one of her loans and qualifies for a deferment.

However, the loan accumulates $200 per month—in interest. If she defers for one year, she will owe thousands in interest alone, and paying that down still won’t go towards paying down the loan.

Many students are in similar situations where they must “scrape by” financially, paying more towards debt per month than they take home. Debt is no longer a $100/mo expense like a cellphone bill. It has become the largest expense in the lives of many young people with little hope to pay it back anytime soon.

Student loans are on the rise, and current graduates are disproportionately affected compared to graduates in years past.

Your ability to payback depends mostly on the employment you receive after you graduate.

According to a National Bureau of Economic Research working paper:

For every additional $1,000 borrowed, the likelihood of nonpayment rises by 0.4 percentage points. Put differently, to offset every additional $1,000 you borrow, you need to earn an additional $10,000 in income or your risk of nonpayment will rise.

Students most likely to pay back their loans had the highest salaries and went to four year schools, which means that students who took loans to go to community colleges and other programs were most likely to default on student loans.

Other interesting factors include whether or not your mother went to college, your gender, and race.

You’re more likely to take out more in loans if your mother didn’t go to college.

Also:

While men and women have “nearly identical” default rates, according to the paper, “women have defaulted on 80% more debt than have men.”

It appears race may also be a factor:

black borrowers still owe 51% of their student loans 10 years after college, while white borrowers owe only 16%. Hispanics and Asians owe 22% and 24%, respectively.

The bottom line is this: don’t take out student loans beyond what you absolutely need and can’t pay. Choose a school that’s more cost-effective than prestigious. Start working on obtaining employment at least 2 years before graduation. And don’t graduate with an enormous ball-and-chain of debt.