By Andrew Housser
This year's college and professional school graduates are entering a tough job market. With jobs scarce and the economy challenging, graduates need a financial strategy. On average, graduates will leave college with more than $20,000 in student loan debt. In addition, many graduates accumulated significant credit card debt while in school. Fortunately, many avenues are available to help graduates -- or those still in school -- manage their educational debt.
First, whatever you owe, the most important thing is to pay bills on time. On-time payments are the No. 1 way to save your credit rating and save money on finance charges. Second, if you have credit card debt, focus on using any extra money to pay it off. Because credit card debts typically carry extremely high interest rates (typically 15-30 percent), there is no better investment than paying this debt as quickly as possible.
Finally, look into all your options when it comes to repaying student loans by considering these six tactics:
1) Take tax benefits
Most new graduates can deduct up to $2,500 per year in student loan interest payments. The deduction phases out for taxpayers with annual incomes between $50,000 and $65,000 ($100,000 to $130,000 for those filing joint returns). Ask a tax advisor to check your tax return to be sure you get all the education-related deductions and credits for which you qualify.
2) Volunteer to earn loan repayment
Several nonprofit organizations that recruit volunteer workers offer loan repayment as one of the perks. AmeriCorps workers who serve 12 months can receive $4,725 to be used toward student loan repayment, in addition to a stipend of up to $7,400. Peace Corps volunteers, who serve two-year terms, may be able to defer Stafford, Perkins and consolidation loans, and volunteers can qualify to cancel 15 percent of each Perkins Loan per year of service, up to 70 percent in total. Volunteers in Service to America (VISTA) offers $4,725 to be used toward repaying student loans for workers who serve for 1,700 hours.
3) Some military service members can receive loan help
Graduates who serve in the Army National Guard may be eligible for the Student Loan Repayment Program, which offers up to $10,000 to repay loans. Federal loan repayment programs also exist for service members in "areas of hostilities or imminent danger."
4) Teachers in high-risk schools might be eligible for loan cancellation
The National Defense Education Act allows students who become full-time teachers in schools serving low-income students to have part of their Perkins loans forgiven -- up to 85 percent over five years. Several additional federal, state and other programs also exist. See a list at the website of the American Federation of Teachers.
5) Legal and medical graduates can earn loan forgiveness for public service
Many programs repay student loans for graduates in law or medicine (including veterinary medicine, nursing and physical and occupational therapy) who serve in public interest or nonprofit positions or in underserved areas. For more information, contact your professional association or search the Internet for your field.
6) If you can't pay
If you cannot pay your loan, immediately call your lender. Lenders would rather work with you than risk a defaulted loan. You will do less harm to your credit rating if you work out an arrangement and must postpone payments for a while than if you default. Damage from defaulting could prevent you from buying a home or car or getting a job, apartment or insurance for years to come. If your total debt is insurmountable, seek help from a reputable debt relief advisor.
Student loan debt can be a healthy type of debt. Education generally is a worthwhile investment, and it provides a strong basis for better earnings throughout your lifetime, as well as the path to a satisfying career. However, graduates should set the basis for their future by avoiding expensive credit card debt and striving to repay all existing debt quickly -- and take advantage of the help that is available to them.
