4 ways to pay off student loans faster

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| By Benjamin Feldman, Credit.com

Many grads leave college with two things -- a diploma and a big student loan bill. Here are some tips for getting rid of that loan albatross.

So you have student loans and can’t wait to get them paid off? Join the club. Millions of people across the U.S. are in that position right now. Some are struggling, some are making progress and some are just getting by.

For those who are looking for ways to pay those student loans off faster, here are four solid tips that can get you debt-free quickly:

Almost every student loan lender (including the Department of Education, which is the lender for all federal student loans) has some kind of interest rate discount for people who set up direct deposit. Usually the discount is about 0.25%. The lenders prefer direct deposit because it increases the likelihood that you’ll continue to make on-time payments. And while 0.25% may seem insignificant, it's actually very significant: Over the course of 10 (or more) years it can knock off a big chunk of the interest you'll pay over the life of the loan. In fact, if you have a loan amount of more than $20,000, that "insignificant" discount could save you hundreds of dollars. Which would help you get out of debt faster.

You should also check with your lender to see if they have any other interest rate deductions. Some lenders may be able to reduce your interest rate based on factors like having a high credit score or having a history of on-time payments. It's always good to double check -- you never know what you might find.

A final consideration is whether it's worth doing a loan consolidation. The federal government (and some private lenders) offer consolidation loans for their borrowers with student loans. In some cases, you can also reduce your interest rate with one of these consolidation loans. What you need to pay close attention to, however, is the effect it will have on all your loans. For example, it won’t help you if one of your loans winds up with a lower interest rate (after consolidation) while another one ends up with a much higher interest rate.

This sounds obvious, but it still deserves your attention. Sure, the easiest way to pay off your student loans faster is to simply pay more each month. But how much more should you pay? And will your lender accept it -- even if you pay early? The answer is, yes, the lender is supposed to always accept your payment. And as for how much extra you should pay each month, you should first decide what percentage of your monthly income you think you can afford to send to your student loans.

Most people start with somewhere around 5-10% of their income -- although for others the amount of their student loan payments makes up a much greater percentage.

So you’ll need to figure out how much you can afford to pay and then make a plan for how to do it. One method that can help you pay off student loans faster is biweekly payments. Basically, with bi-weekly payments you make a half-month payment every two weeks. Since that means you end up paying 26 bi-monthly payments (the equivalent of 13 monthly payments) per year, you will chip away at your student loan balance much faster.

Just make sure you're not overpaying one month, then missing your next payment. Any missed payments can hurt your credit score, costing you more money in the long run when you want to buy a home or get a credit card. Your payment history is one major component of your credit score. If you want to monitor your credit, you can get your Credit Report Card, which gives you a truly free credit score and also gives you a grade for each of the major components of your credit score so you know what to do to improve it.

Of course, it's hard to put additional money toward your student loans if you don’t have additional money in the first place. One way to gain extra income is to take up side jobs. There are an almost unlimited number of side jobs out there, and depending on your abilities and preferences you can no doubt find one that suits you. Perhaps you’d be able to tutor a local high school student, teach music lessons, or sell crafts you make.

Also keep in mind that if you have a skill such as writing, designing, etc., then you can always do freelance work. With freelancing, your weekly hours are pretty flexible and at the same time you can earn a significant amount of money.

No matter what else you do, it’s extremely important that you become a master of budgeting. Your budget will be the one thing that guides you to paying off your student loans faster. Without a budget, you’d be hard pressed to know exactly where your money is going.

With a budget, however, you can plan exactly where your money goes each month. And with that kind of control, you can ensure you have enough left to pay your student loans every month. To accomplish this, it will help to save money in every aspect of your life. When you go to the grocery store, look closely at the prices of each item you buy. Ask yourself if there are any impulse purchases in your cart that you don’t really need. If so, put them back. Meanwhile, try to only buy reasonably priced items. Luxuries can wait until after your student loans are paid off.

And it should go without saying that you should try to limit your trips to restaurants (and movie theaters, concerts, etc.) while you're paying off your student loans. These kinds of expenses are exactly the ones that will eat up your income for paying off debt and will prolong your exposure to indebtedness.

Hopefully these tips are helpful. With the right plan and a bit of determination, you will definitely get those student loans paid off faster than you might think.

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5 steps to deal with student loans

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| By Benjamin Feldman, Credit.com

Debt repayment may not have been top of mind when you signed up, and the monthly payments can look scarily large.

When you are 18 years old and on the verge of starting your college experience, you often have no way of understanding the impact that student loan debt will have on your life (once you graduate from college).

In the eyes of the 18-year-old, the numbers are abstract and don't convey what it's like to actually make payments on the loans each and every month.

I was lucky that my student loans were manageable, but even so it was a bit of a shock to realize how hard it is to pay them off. Here are some of my tips from personal experience:

No. 1: Wrap your mind around the numbers, no matter how big.

There's no way around it -- you have to understand exactly what your student loan debt means on a monthly basis. And to do that, you need to compare your student loan payments to your monthly budget. Depending on how big of a percentage of your budget is represented by your student loan minimum payment, you will know what kind of plan is realistic for you.

If your payment is less than 10% of your total monthly budget, then you don't have to worry about your ability to pay. And if your required student loan payment is somewhere between 10% and 20% of your budget, then most likely you can make your payments (and perhaps even add a little extra).

But if your minimum payment is above 20%, and especially if it's more than 30%, then it is going to be a challenge for you to make that payment every month. If that's the case, you will need to take advantage of the advice in the next paragraph.

No. 2: If you can't afford your payments, don't give up -- take action!

It's very important that you don't simply give up if you think you can't afford your monthly payment. Why? Because if you give up, you'll risk becoming delinquent and perhaps eventually defaulting on your loan. Just like with credit cards, making one late payment can have serious consequences, including doing harm to your credit scores and opening you up to being pursued by debt collectors or having your wages garnished (for federal loans).

Fortunately, you can avoid all that! There is an income-based repayment program that allows you to get on a new repayment schedule where your monthly payments are capped at 15% of your monthly income. It does mean that your repayment timeline is extended to 25 years, so you'll have to pay more interest in the long run, but that is a small price to pay if it gives you some breathing room if payments that are too high.

While the IBR program is only for federal loans, many private lenders have similar programs that will allow you to set up an extended repayment schedule. Just call your lender and ask.

No. 3: Know your options and your rights.

But what if you can't make your payments at all? In that case, it's still important to be proactive and make use of forbearance and/or deferment.

Forbearance means that your lender agrees to give you a certain period of time -- perhaps three months -- when you don't have to make any payments on your student loan. This is often granted as a courtesy, especially if you don't have any income and are not able to make a payment. But you have to ask for it and work out the arrangement with your lender. Simply ceasing to make payments without communicating with your lender will usually cause your loan to go into default.

Deferment can also be a great option and is usually available to those who are are in graduate school, unemployed or on active duty in the military. Deferment means that you don't have to make payments and it usually means that your loan or loans are not accumulating interest.

There are other options you should know about, including the Public Service Loan Forgiveness Program, which will forgive all remaining student loan balances after 10 years for anyone who has worked in a qualifying public service job and consistently made payments during those 10 years.

No. 4: Make a plan and stick with it.

So once you've got a monthly payment and a plan that works with your budget, how do you make sure you stick with it? There are a few tips that may come in handy. For one thing, tell your loved ones about your plan and ask them to encourage you along the way -- the power of emotional support from those you trust and care about may surprise you and will help you accomplish your goal.

I would also recommend that you use online tools to help you track your budget and manage your debt. These tools ensure that you stay on top of your plan and help you continue to be motivated by reminding you of your progress each month.

If you need extra money in any given month in order to stick with your goal, you can try freelancing -- using sites like Elance, oDesk or Mechanical Turk -- and make some side money with a small investment of your time. Whether you like writing, designing, crafting or something else, you can probably find someone who is willing to pay for your skills and your time. And that extra money can go toward paying your student loan payments. Who knows, it may even help you pay off your loans early!

No. 5: Stay positive.

This may be the most important of all. By maintaining a positive outlook and brushing off any negative incidents along the way, you will increase the likelihood that you pay off those loans and become debt free. There will always be some hurdles that interrupt your progress and make your path seem much more difficult, so don't be hard on yourself when these things happen. Just accept that they are a part of the journey and "keep on truckin'." Your positive attitude will ensure you continue to do the things necessary to reach your goal. And that will make all the difference.

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Consumer debt eases despite growing student debt

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A decrease in the amount owed on mortgages helped drive overall U.S. consumer debt lower in the second quarter, even as Americans kept piling up student loan debt, data showed on Wednesday.

Total consumer debt fell 0.5 percent to $11.38 trillion compared to the first three months of the year, the New York Fed said in its quarterly household debt and credit report.

Since the financial crisis and recession, Americans have been paring back the large amount of debt they amassed during the housing boom.

Student debt has been the exception. Student loans have increased by $303 billion since the third quarter of 2008, at the same time as other forms of debt have fallen by $1.6 trillion.

In the second quarter, student debt rose $10 billion to $914 billion.

Auto loans also increased in the quarter, rising $13 billion to $750 billion.

Consumers kept paring real estate-related debt. Mortgage balances fell 0.5 percent to $8.15 trillion, while balances on home equity lines of credit dropped by 3.7 percent, or $23 billion.

Mortgage originations rose to $463 billion, a positive sign for a housing market that has been hampered by tight access to credit.

Overall delinquency rates improved, falling to 9 percent from 9.3 percent, as rates improved for mortgages, credit cards and auto loans. Credit card delinquencies stood at 10.9 percent, the lowest level since the last quarter of 2008.

1.8 percent of mortgage balances fell into delinquency, unchanged from the previous quarter.

Student loan delinquencies increased for the second quarter in a row. Loans that were 90 days or more behind increased to 8.9 percent from 8.7 percent.

The number of credit account inquiries over six months - an indicator of consumer credit demand - fell 2 percent to 167 million inquiries.

Copyright 2011 Thomson Reuters.

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Foxconn treatment of student interns criticized

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Bobby Yip / Reuters

Workers are seen inside a Foxconn factory in the township of Longhua in the southern Guangdong province, in this file picture taken May 26, 2010.

A highly publicized labor audit of Foxconn, conducted by a nonprofit group at Apple's behest after the tech giant faced public pressure to improve working conditions in its supply chain, revealed much about factory practices and conditions. It failed, however, to adequately address what some watchdog groups call an entrenched pattern in Chinese factories: The poor treatment of student interns. 

"As far as I know, no Western company that uses Chinese labor has explicitly addressed this issue at all," Ross Perlin, author of "Intern Nation," said via email. "They should be taking a stand against the exploitation of student labor."

Investigations by Hong Kong-based groups Students and Scholars Against Corporate Misbehaviour and the China Labour Bulletin detail an internship system rife with abuses, minimal protections for workers as young as 15 years old, and designed to take advantage of loopholes. These watchdog groups cite instances of compulsory internships with long hours and no days off, often in fields unrelated to what the students are studying. Since the students aren't technically employees, companies aren't held responsible if they suffer on-the-job injuries. 

In one report, the CLB said interns "lack the legal protection guaranteed to those with an employment contract. If interns are injured, forced to work excessively long hours or are cheated out of their pay, they often have no one to turn to. And if they do complain to their school, they run the risk of not getting their diploma."

The pool of student talent available to companies like Foxconn is deep. Nearly half of the Chinese students enrolled in technical schools specialize in manufacturing or information technology; in 2010 alone, 2.6 million graduated from these fields, according to the report. A 2010 SACOM report said, "Some interviewees highlighted that the proportion of student workers was as high as one-third or even a half," at Foxconn's Guanlan factory in southern China. The company disputed the figure and said the highest proportion of interns it ever employed was 15 percent.

Foxconn might be the biggest, but it's by no means the only company that takes advantage of the cheap, plentiful labor students provide. "Along with other forms of forced labor more generally, forced or required internships are common in China," Perlin said. The CLB investigated 42 instances of forced internships involving more than five dozen schools and factories over a three-year span.

Schools that provide the students are motivated to preserve the status quo, since they sometimes earn money from the companies who pay them for delivering cheap labor; the students, on the other hand, may be charged "tuition" for the hours they spend on the factory floor. "Student interns are de facto workers in the factory," SACOM said in an investigation of Wintek, another Apple supplier. Although they worked the same long hours as their adult colleagues, these interns only earned roughly $79 per month. "The remaining part of the salary goes to the schools," SACOM said.

In an open letter to Apple CEO Tim Cook, SACOM called for an end to the use of student labor. This is probably unlikely, as the Fair Labor Association, which conducted the Foxconn audit, included in its report a list of improvements to the existing internship system rather than eliminating it altogether.

The FLA defended its audit and said it is attuned to the plight of interns. "FLA made a special effort to understand and assess the risks facing interns at Foxconn," spokesman Aaron Pickering said via email. He pointed to the proposed reforms, which include steps like making sure internships are relevant to what students are studying, paying interns minimum wage and instituting a 40-hour workweek. 

Meg Roggensack, senior adviser of business and human rights at Human Rights First, said following up is crucial. "It will be very important that they continue to monitor it and make sure the commitments are adhered to," she said.

Pickering said this is already on the agenda. "FLA and local organizations will continue to closely monitor the internship program at Foxconn," he said. 

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