August 16, 2007


* For individuals that will graduate this summer or graduated this past May, see note below on potential law changes that may have a dramatic impact on your loan repayment.

It seems like everything in the news these days is debt-related – housing concerns, sub-prime loans, unethical student loan practices, predatory lending, credit card issues, credit problems – more so than ever, we’ve become a society that is driven by debt. On the other end of the spectrum, it seems that more and more individuals are fighting this trend and have started down the road to reducing personal debt.

University of Nebraska-Lincoln Extension has created a nice resource to assist people in this journey. Their website
identifies 10 ‘road signs’ to follow while walking down the path to “debt freedom” …

  1. Don’t wait to act. It’s no secret that getting started is the hardest part of everything! The sooner you begin, the sooner you’ll arrive.
  2. Stop using credit. The recommendation offered is to cut up cards and stop using them altogether. This may be advisable for some. Regardless, this plan should have you keep from taking on new debt. Avoid taking one step forward and two back.
  3. Make getting out of debt a family affair. Differing attitudes/values about money are a large potential source of conflict – communicating about your plan will enhance its likelihood of success. If you’re single? Talk with your family; talk with roommates and others that can offer support.
  4. Organize financial records. A workable budget is critical. I talked about several different resources in a recent blog; UNL also talks about common budgeting methods.
  5. Learn about your debt. Winning financially requires that you have an understanding of financial concepts. Do you know what your interest rate is? What does APR mean? What is a grace period? …
  6. Create a written debt plan. Who should I pay first? Am I in a position to negotiate lower rates? UNL provides links to worksheets and other information to assist in one’s plan development. You may remember my blog that addressed different perspectives for developing a debt reduction plan.
  7. Find ways to cut expenses. All of us spend money on things we don’t need. 66 ways to save money is a popular resource for considering ways to cut expenses.
  8. Find ways to increase income. Obviously finding additional resources is a great way to get out of debt sooner. 2nd job? Seek a raise? …
  9. Make sacrifices. I’ve always liked the sentiment commonly shared with students: ‘You can live like a student now and a professional later or you can live like a professional now and live like a student later’ … anything worthwhile will require sacrifice.
  10. Once you get there, stay there and begin a savings plan. Once you arrive, staying out of debt is one part of the challenge; the other is to begin saving and investing money to continue moving forward. Mutual fund companies like T. Rowe Price, TIAA-CREF, Ariel Funds, and Homestead Funds are all examples of institutions that cater to beginning investors [by waiving a large required initial investment for individuals willing to make monthly automatic investments ($50 in most cases)].

This past month while I was on vacation, the government was busy talking about changing existing student loan legislation. I’m not going to take the time now to outline all of the potential changes for you because changes have yet to occur. You can view the pending legislation at NASFAA, the professional organization for financial aid administrators. Many of the changes seem smart (increasing funds in Pell Grant program, increasing transparency in the private loan industry, etc.). As is usually the case, some of the changes leave you scratching your head …

There is one potential change that would dramatically impact individuals that have yet to begin repayment on their student loans; individuals that graduated this summer and past May have the opportunity to get around the possible roadblock by taking action (this change WOULD NOT impact individuals that are currently in repayment on their student loans). Without going into unnecessary detail, one of the proposed law changes would severely cut the subsidies [money provided by the government] that are given to lenders. In many cases, these subsidies are passed along to students in the form of borrower benefits (the rate reductions given for automatic and on-time payments). In conversation with lenders, it is clear that if this law is passed [which seems likely based on its overwhelming support by the Senate], borrower benefit packages as we currently know them will be dramatically altered. It will likely push many of the smaller players out of business. It would also change things based on the date the loan is disbursed … this is a critical distinction because typically, things related to student loans are based upon the date of signature (for example, in the past, if you signed a consolidation application before July 1st, you received the pre-July 1 interest rate). With this change, it would impact the date the loan is disbursed (i.e., for those who graduated in May and are planning to keep their grace period until November, November X will be the disbursement date and if the law is passed before then, you will not receive the borrower benefits that you anticipated getting when you signed up for them in May)! If the law is passed, it will take effect [as currently drafted] on October 1 which means if you have not consolidated, you will want to consider consolidating immediately as the process normally takes 4-6 weeks. By having the loan disbursed prior to October 1st, you will lose a bit of your grace period, but it seems like a small price to pay in order to maintain your borrower benefits. If you still don’t have a job and can’t afford to begin repayment, don’t worry – after the consolidation is completed, if you are unemployed, you will still be eligible to defer your loan payment until you find a job.

If you’ve got a ‘good’ lender, they’ve likely already contacted you about these potential impacts to your situation. Hopefully they have – if they haven’t, you should contact them and talk to them more about this potential change and how it could affect you. If you have questions about this or other financial issues, visit our website ( to schedule an appointment to visit with a financial counselor or planner.

Dr. Oleson