What to do when a college diploma brings a mountain of debt.

What to do when a college diploma brings a mountain of debt.

College graduates often leave their universities with an unwelcome burden, a significant amount of debt.

It is important to note how much student debt has grown over the last decade. CNBC reports that student loan balances have increased 150 percent in the previous decade, with the average loan balance up 62 percent to $34,144. At the same time, the percentage of borrowers who owe more than $50,000 has tripled.

That means that the odds are good that college graduates will leave school with at least some debt to repay. It says, too that paying back this amount of debt will be problematic for some graduates who struggle after entering the workforce to find jobs that pay decent wages.

The good news is that there are options for graduates who cannot afford their monthly student-loan payments. The bad news? Those graduates who ignore these possibilities could face serious financial consequences.

Don't ignore it

The worst move that college graduates can make when their student-loan debt becomes overwhelming is to ignore the problem.

It is tempting for students to ignore their late bills and hope that the problem goes away. However, it will not. Graduates who do not make their student loan payments on time could face severe financial penalties. They will also see their three-digit credit scores take a hit. That is bad news: Lenders of all kinds -- mortgage, auto and personal -- rely on these scores when determining who gets loans and at what interest rates. Those borrowers with weak credit scores will either not qualify for loans or credit cards or have sky-high interest rates for loans they can obtain.

So what should graduates do if their loan payments become too much of a burden? They should call their lenders. That might be embarrassing, but most times lenders will work with graduates to come up with a solution to their financial woes.


Many graduates choose to consolidate their student loans. Under consolidation, multiple loans get combined into one. That simplifies paying back these loans: Graduates now have to make just one payment every month. Consolidation can also lower the monthly payments of graduates because the process gives them up to 30 years to repay their loans.

The downside? Graduates who increase the length of their repayment period will pay far more in interest during the life of their student loan debt. That is why loan consolidation is not always the best financial solution for college graduates.


Some lenders might allow graduates to postpone their loan payments during times of unemployment or other financial crises. That gives graduates extra time to shore up their finances or find a better-paying job.

The problem? Adding months to the lifespan of a student loan means that borrowers will usually have to pay more interest over the life of the loan. The best way to handle student loan debt is to pay it back as quickly as possible. Postponements instead make debtors spend more months paying back their loans.

Payment plans

Another option for borrowers is to request a new payment plan from their lenders. Lenders might be willing to lower the amount of money that borrowers have to pay each month. They might also be willing to reduce the interest rate attached to the loan.

Borrowers who took out federal student loans might qualify for income-contingent repayment plans. Under these plans, graduates only pay a monthly payment that is a set percentage of their monthly incomes. Such plans are a boon for borrowers whose monthly incomes are low.


Graduates can also sign up for specific careers or programs to reduce the amount of student-loan debt they owe. For instance, graduates who sign up for the Peace Corps can eliminate 70 percent of their student loan debt from Perkins loans. Those who took out Stafford and consolidated loans can receive a deferment of up to 27 months.

Graduates who sign up as volunteers for Americorps can after one year of service receive nearly $5,000 to pay off their student loans.

Facing monthly student loan payments can prove stressful to recent college graduates. Moreover, those graduates who are struggling to find good-paying work in their field will face even more stress when those student loan payments come due.

Those students who want to overcome their debt, though, will have to be proactive. There are options out there. It is up to graduates to do the research necessary to find the best ones for them.


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