As a nation, America's student debt load is reaching crisis proportions. The New York Federal Reserve puts the total student loan debt at over $1.52 trillion, with the delinquency rate over 11%.
Is your personal student loan situation nearing a similar crisis? Consider these five warning signs to assess whether you are handling your student loans responsibly or are on the road to potential default.
This may be the most dangerous sign of all – refusing to realize the consequences of defaulting on a student loan. Adam Carroll, Founder and Chief Education Officer of National Financial Educators, likens student loans to "the worst weed to have in your yard because if it goes unchecked, it will grow to massive proportions."
You can't just wave a magic wand and make your student loan debt go away, nor can you pretend there aren't serious consequences for defaulting. At best, your credit is ruined for years. The Federal Student Aid Website contains information on alternatives like income-based repayment options and deferment/forbearance – but you have to make the effort to seek them out. Note that you may also not qualify for certain options.
2. Missing Monthly Payments
You must make the minimum monthly payment on your student loan to avoid penalties and other detrimental side effects. If you find yourself missing a payment or making overdue payments for any reason, you may be in trouble – whether it's from carelessness or lack of funds.
Set an alarm on your phone or computer to remind you that a payment is due. If you don't have a budget, make a realistic one to control your spending. If you do have a budget, stick to it. Do whatever it takes to get those monthly payments in on time.
3. High Interest Rates
Generally, federal student loans provide reasonable interest rates compared to the open market – but if your student loan has abnormally high interest rates, consider your refinancing options through the Federal Student Aid website or through private lenders. Why pay any more in interest payments than you must? Find out quickly at what rate you can refinance your student loan.
4. Excessive Overall Debt
Did you rack up excessive credit card debt during the grace period? Does your job not bring in sufficient income to cover all your bills? It's easy to think you can make minimum payments and pay everything back in better times, but you run the risk of falling into a debt spiral – where interest payments on your balances become so large that you can never catch up.
Don't consider bankruptcy as a viable option either. Student loans generally can't be discharged in bankruptcy.
Again, budgeting and spending control is the answer. It may not be the answer that you want to hear, but it's the correct one.
5. Poor Repayment Priorities
It's wise to attack high-interest debt like credit card debt first – but you must make at least the minimum monthly payment on all outstanding debts, including your student loans. If you devote all your funds to credit card debt and ignore other payments, the fees and penalties that you incur will negate your gains.
Of course, to have funds to pay down debt spending must be less than income. This requires sticking to a reasonable budget. Are you spotting a pattern? The answer to all these warning signs is responsibility – taking responsibility for your debt and managing your spending and income to meet all your obligations. Do any of the warning signs apply to you? If so, you know what to do.
If you want to reduce your interest payments and lower your debt, try the free Debt Optimizer by MoneyTips. For more of our exclusive student loan data and insights, visit Student Loan Crisis Series 2018.