It’s as the legendary military strategist Sun Tzu said in his work The Art of War. Know your enemy. (That’s actually just a paraphrase; what he actually said was longer and more poetic.)

 

In this context, your enemy is student debt. It’s a complex monster that you have to fight and defeat. To get yourself fired up to pay it off, here are some slightly unpleasant facts.

 

National Debt

Image credit: Jason Kuffer – https://flic.kr/p/4nHEcp

 

Student debt is widespread and slows economic progress

 

The Consumer Financial Protection Bureau confirms it: student debt in the United States now accounts for over a trillion dollars on the national debt. It’s the second largest form of consumer debt in the country, behind only home mortgages.

 

With so many people in so much debt, the rate at which people buy homes, get married, start families and begin businesses is decreasing at an alarming rate. As all of these things are what stimulates the economy, the result is that student debt is creating severe economic problems. Rising interest rates and fewer jobs are the result of a crippled economy. Not to mention the fact that student loans are paid for via the taxpayer, so the real creditors for student debts are the American people.

 

Being unable to pay it off only makes it more expensive

 

One of the small print pieces of information regarding student loans is the business of capitalized interest. To put it as simply as possible, it means you pay interest on your interest. Any unpaid interest that builds up over the course of your loan will be added onto your principal. (Your principal being the total amount you have yet to pay; it’ll be the big number on the front of your billing statements!)

 

 

So if you have difficulty paying back the debt at any point, then the unpaid interest will be added onto an amount that is already accumulating interest. So your interest rate ends up increasing at a faster rate and you end up having to pay more money.

 

There is help available, but it depends on your loan type

 

This has sounded like a pretty despairing article so far! But it’s important to realise the weight of a student debt. It’s not just the big number you have to work down to zero. Once you realise how important it is to pay it back, it’s time to start looking at your options for help.

 

Something like the Obama Loan Forgiveness program (otherwise known as Pay As You Earn) can aid you, as long as you can qualify for it. The specific debt relief program you’re eligible for usually depends on the type of loan you took out. Most student loans are federal loans. Many of those are Stafford loans. (A subsidized Stafford loan has the government pay the interest while you’re at school, thus negating the above ‘capitalized interest’ problem). There are also PLUS loans and Perkins loans. If your loan was acquired through a private creditor, you may find assistance less widespread.

 

You must research your debt as much as possible

 

You have to protect yourself by going to the website of your creditor and reading up all the info you can get on your loan. You should also have another read of your contract(s). Armed with the right information, you may work out a solution quicker than you think.

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