Monday, May. 02, 2011

Don't Stretch Student Loans

Most young adults who have graduated from college are saddled with student loans to remind them that their time on campus wasn't just fun; it was expensive. The average new grad carries $24,000 in student debt, according to the Project on Student Debt. Your child has six months after graduating before she has to make any payments. Even after that, student loans are one of the easiest debts to restructure; so many people still don't pay, at least not in full. Yet this is the one debt you want to help your child retire in a timely way. Student loans are almost never forgiven, even in bankruptcy. The lender has the power to garnish wages or even, if it gets to that point, the first rights to Social Security income. Meanwhile, with many student loans interest continues to accrue even through allowed periods of loan deferral. Ignoring student loans in your 20s and 30s can be financially crippling for decades. If the loans are through the federal government, the cheapest and best way to keep your child current as is to apply for forbearance. Federal student loans can be put on hold for up to three years, during which time interest will not accrue and the borrower does not have to make payments. On private loans, though, interest accrues and will swell your child's balance. For a few hundred dollars a year, you can make the interest payments for your child. That won't shrink their debt but it will keep it from growing.