29 Days to Diva: Day 15 – Deal With Your Debt (#29daystodiva)
As I was reminded recently, work is not sexy³. Acknowledging that you have paid thousands upon thousands of dollars to be put through your paces is even less sexy. Perhaps that is why there is a culture of silence surrounding young artists and debt. Or, maybe it is simply an understood fact? Like the majority of Americans young artists are saddled with student loan debt; however, they have a less clear plan of how to rid themselves of the burden. The world at-large wants to believe that musicians have sprung up from some hiding place with fully developed talent and that they approach all opportunities with a clear mind. Why on earth could you not accept this 12-week program that offers a $20 stipend and a handful of slippery elm drops? Worried about paying your student loans? Why… I never! Dealing with debt is complicated. In fact, the whole debt subject can be completely opaque to new borrowers or recent graduates trying to juggle repayment options. To help shed some light on this subject, our day 15 challenge is to deal with your debt.
There are many kinds of debt that musicians will encounter throughout their lives. For 29 Days to Diva (#29daystodiva), we chose to mainly discuss student loan debt. There is a natural timeline for the course of student loan debt:
1. Choose Schools
Choosing schools is important. Do you want the name recognition? Did you bond with a voice teacher there? Are there ample opportunities for performances and networking? Make sure you look at a handful of schools and select your favorites. Also take the time to think about what kind of budget you will be dealing with in the long run. Are you paying for it all by yourself? That might change how aggressively you will need to pursue scholarships or the institutions you apply to based on tuition amount. Once you have a few schools in mind, investigate ways to pay through various grants, scholarships, and loans. Contact the financial aid officers at those schools and ask them what you can do to make their institution the most affordable for you.
2. Submit a FAFSA
To qualify for student aid in the United States, you must complete the FAFSA (Free Application for Federal Student Aid). You can include on your FAFSA up to six schools you are interested in attending. Find out the aid deadlines from these schools and submit the FAFSA before the earliest one.
3. Award Letters Arrive
The schools you include on your FAFSA will send you their financial aid offer in a package, often referred to as an award letter. The aid offered in award letters will be different for each school, so review your award letters very carefully. Also review the dates for accepting awards or any additional work that must be done to accept the award.
4. Fill Aid Gaps
1. Know Your Responsibilities
2. Pay Early
1. Enjoy Grace
The purpose of the grace period is to give you time to find employment. During grace, you don’t need to make any payments on your student loans. Given the economy, do your best to find the highest paying gigs or jobs you can. Sock away some money for the shock of repayment. The Institute for College Access & Success reports, “Two-thirds of college seniors graduated with loans in 2010, and they carried an average of $25,250 in debt. They also faced the highest unemployment rate for young college graduates in recent history at 9.1%.”¹
Do an in-depth review of all your loan files. Find the 800 numbers for each one so that you can immediately resolve any issues. Mark your calendar for the end of your grace period. Do not let this catch you off-guard. Try myeddebt.com to get a summary of your student loans in one place.
2. Repay Your Loan
You will need to know the exact amount of each of your debts as well as their interest rates and minimum payments – which should be a breeze since you’ve already collated all of your loan materials. After you get this information you can make the list in either two forms:
- In order from lowest to highest amount.
- In order from highest to lowest interest rate.
There are two options to get the snowball effect: pay the highest interest rate debts first or pay the lowest amount debts first. The first version allows you to start regaining some monetary control of those loans with outlandish interest rates. (If the rates are truly outlandish, see ‘consolidating’ in the next section.) Paying the lowest amount debts may be more satisfying though. It will feel great to see one or more loans whittle away quickly. Try to evaluate how much you owe against the interest rate to see which plan is better.
3. Can’t Pay
Do not despair – but take action early! If you are going to have problems with your suggested repayment plan call a customer service representative and apply for a myriad of actions that will help ease the burden of student loan debt. Some solutions are available through most loan servicers.
- Change Your Due Date.Make sure you have money in the bank when it’s time to pay your bill.
- Reduce Your Monthly Payments. The repayment plan you choose affects the amount you pay each month. Many providers also offer Income-Based Repayment options.
- Postpone Payments. Find out if you qualify for a deferment or forbearance, which allows you to postpone monthly payments. Many musicians that go into teaching are eligible for these types of postponement.
- Loan Consolidation. Combine one or more existing student loans into a single new loan. Consolidating federal student loans may be a good strategy to lower monthly payments or to get out of default, but it is not always a good idea.
- Loan Discharge and Loan Forgiveness. If you meet the eligibility criteria for loan discharge or forgiveness, your loan balance will be paid for you. Those in fields of public service are eligible for these types of programs.
4. The Final Payment
You made it! Do an even bigger happy dance than those that didn’t have to take out loans – because you’ve made it through one hell of a process.
If you do not have a deferment or forbearance and you don’t make any loan payments for 270 days on a federal loan or 120 days on an alternative loan (although it may be more or less, depending on the lender), your lender/loan servicer will take steps to place the loan in default. Don’t let this happen!
Default can have devastating consequences:
- You will incur collection costs (including attorney fees) of up to 25%.
- Your entire loan balance (and any collection costs) is immediately due in full.
- The government may keep your income tax refund and apply it toward your loan debt.
- Your employer may be legally obligated to forward 15% of your salary toward repayment of your loan.
- Federal debt collection procedures may be taken against you.
- You will damage your credit rating (default stays on your credit report for up to 7 years).
- You may lose your professional license.
- You will no longer be eligible for financial aid, including loans and grants.
- You will no longer be eligible for deferments of any type.
- The interest rate on your loan may increase.
The U.S. Department of Education or your lender may take legal action against you to force repayment of your debt.²
Read this first: Bankruptcy does not relieve you of your student loan debt. Read it again. Now, do absolutely everything in your power to stay away from bankruptcy.
It is true that this type of discussion and thinking are not necessarily sexy. However, you will be a much more attractive performer with a clear mind when it comes to your finances. Daydream for a moment about all the exciting, fascinating, and enchanting experiences you could have if you were not so weighed down by your debt. Snap-to and do something about it! Be content to simply sing about the pauper lifestyle of la vie bohème while you are living a life that builds your wealth.