I went to graduate school with a plan. I would duck out of the workforce for a year, use student loans to pay tuition and living expenses while I earned a master's in journalism, and then I'd land a (predictably low-paid) journalism day gig, while freelancing at night as an ad copywriter to pay off my student loans.

It was a pretty solid plan as far as freelancing goes. I am an experienced copywriter who had been juggling day and night jobs for years, working six to seven days a week, in addition to taking writing classes, language classes and a recreational ballet class to keep fitness in the mix.

Jobless Gen Ys Return To Grad School

How To Calculate Student Loan Payments Under The New Obama Plan

Tips On Consolidating Student Loans

I submitted my applications in December 2007. In retrospect this seems less than sane, but at the time it wasn't so illogical. After all, it wasn't until December 2008 - a full year after I put in my career-changing paperwork - that the solons at the National Bureau of Economic Research declared the recession had begun in December 2007.

Graduate student applications have risen sharply this year, as jobless Gen Ys have looked for a place to hide out (productively) during the recession. But that wasn't my motivation. I was going to graduate school because I wanted a career change and my efforts to break into journalism without that credential had been unsuccessful.

So, based on my past success juggling jobs, I filled out the FAFSA on-line form and took out a mix of student loans. I took out federally guaranteed subsidized and unsubsidized Stafford and Grad Plus loans, and, once Sallie Mae (NYSE:SLM) and Citigroup (NYSE:C) gave me the go-ahead, private loans, too. My loan total: just over $50,000, with the private portion carrying a stiff interest rate of 8.5%. (For background reading, see College Loans: Private Vs. Public.)

I borrowed more than the financial aid officials at my graduate school said it would cost to cover what I calculated was the true cost of opting out of a year of work and of changing careers. Here's what was included in my calculations, but not my school's:

1. Medical coverage and prescriptions: I opted to continue my medical insurance from my previous job for 18 months as provided by the federal law known as COBRA. I could have gotten cheaper insurance for the school year from the university, but sticking with COBRA meant I'd be insured for six months of care after graduating. That was, I believed, a prudent step.

2. School equipment: A new Apple Inc. MacBook $1,500; camera, $250; video camera, $300; software, $500 plus; textbooks, $200.

3. Moving from the East Coast to the Midwest, then back.

4. I assumed in my budget that after I graduated it would take me three months to relocate to the New York City area and land a new job. I added these costs to my student loan borrowing, knowing that once I had graduated and was jobless I wouldn't be considered credit worthy enough to borrow more.

I received my acceptance letter in April 2008, just after the Federal Reserve helped JPMorgan Chase & Co. (NYSE:JPM) acquire Bear Stearns, but before Lehman Brothers (OTCBB:LEHMQ) went under and AIG (NYSE:AIG) and General Motors became wards of the state. Journalism was, as always, a little shaky. But print advertising hadn't yet fallen off a cliff and internet advertising for media sites seemed vibrant. Plus, this was something I felt I had to do. I needed change.

So loans in hand, I quit my job in August 2008 and headed West. It was still a few months before it would begin to feel like someone had pulled the plug on the economy and before the NBER confirmed that, yes, the economy was in a recession. By the time it was clear how bad things were, I was knee-deep in school. Dropping out would have meant perhaps never completing my journalism education. Staying in the graduate program and hoping for a turnaround seemed to make the most sense. Plus, I didn't know 142 newspapers would close in 2009 or that unemployment would top 10%.

School wrapped up August 2009 and in September 2009 I joined the ranks of the unemployed. Since I had voluntarily left, rather than lost my last job, and had most recently been a student, I qualified for no unemployment benefits. I got a few writing assignments and a part time internship (at Forbes), but was without prospects for a real job that would remotely enable me to chip away at my debt.

Instead of the hoped-for job offers, notices began arriving in the mail stating that my standard six-month student loan repayment deferral period would be ending in March 2010. At that point, I will owe $1,550 a month on my private loans and $321 a month on my collection of government guaranteed loans.

What comes next? Here, for the benefit of my fellow indebted graduates, is what I've found to be my options:

1. Private and government loans can be deferred beyond the initial six-month period after graduation for financial hardship or if a student is still in school, unemployed or collecting disability. During this period interest will continue to accrue on most of my loans, except for those that are federally subsidized as well as guaranteed. For those loans, the government will eat the interest costs.

2. If I don't qualify for deferral, I can apply for forbearance, which is like deferral, but up to the discretion of the lender, explains Jevita Rogers, director of the Office of Student Financial Aid at Virginia's George Mason University. (So, for example, if am working part-time or in a very low-paid job, I might have to end up applying for forbearance.) The maximum period for deferral and forbearance combined is 36 months - after you stop being a student.

3. I can become a professional student, take out even more loans and face things in oh, say, 2020. While I am a student, all my unsubsidized loans will continue to accrue interest.

4. I can do a year in AmeriCorps and will qualify at the end of my stint (of 10 months to a year) for a $5,350 stipend to go to school, or in my case, repay loans. But while I am serving, most of my loans will continue to accrue interest. The military sometimes forgives debt for certain in-demand professionals who sign up, points out Mark Kantrowitz, founder of Finaid.org. In-demand means nurses and doctors, not journalists.

5. I can opt for the new income-based repayment plan for my government guaranteed loans. If I take a private sector job I will pay 15% of my income over 150% of the poverty line, for 25 years. If I take a government job, I'll only have to pay for 10 years. But I'm not looking to work for the government and my private loans - the bulk of my borrowing - aren't eligible for income-based repayment anyway.

6. I can ignore my mail and my lenders. Ruth Hoch, associate director of Financial Aid at George Washington University, urges against this option. "Get in touch with the lender," Hoch warns, since you don't want to end up in default. Bankruptcy? Don't even think about it. The current laws make it difficult to get relieved of student debt.

7. I can use what's left of my savings and seek out an 80-plus year-old Midwestern couple and have them buy Lotto tickets for me, since that demographic always seems to win. (But I'll need to get my deal with them in writing, lest I be the victim of a granny-grandpa-double-cross, motivated by their own understandable desire to help their own grandkids pay off their loans.)

8. I could get lucky and have my initial plan - journalism and copywriting - become viable once again and begin paying down my debt.

Let me add that keeping on top of all these options, while obviously easier than paying off the debt, is no mean feat. Being a responsible citizen, after Sallie Mae sent me a notice saying my loans had been put into deferment through 2011 - without any action on my part - I called to investigate. Was this good news true? I got an unequivocal "yes." One week later, Sallie Mae sent an e-mail saying my first payment was still due in March 2010.

How exactly did my status change in the matter of a week? According to Sallie Mae: The company had suddenly received notice that I'd graduated in August.
So now I'm filing for a deferral-for-cause (un- or under-employment) and buying myself time while the interest grows.

Related Articles
  1. Investing Basics

    10 Companies That Yuppies Love

    Learn about 10 companies loved by the modern Yuppie, including how this demographic's impressive buying power has boosted these companies' earnings.
  2. Professionals

    How to Build a Financial Plan for Gen X, Y Clients

    Retirement is creeping closer for clients in their 30s and 40s. It's a great segment for financial advisors to tap to build long-term client relationships.
  3. Savings

    6 Ways to Save Money on College Supplies

    Tuition and room and board are big expenses, yes, but the cost of textbooks and supplies can add up, too, unless you strategize.
  4. Professionals

    Is it Time to (Finally) Push Kids Out of the Nest?

    Parents should make sure their kids realize their home is a launching pad not a landing spot, and advisors can help clients talk to their children.
  5. Investing

    4 Things Millennials Can't Live Without

    Millennial investors are different from those in previous generations. Here are four Gen Y needs which are instrumental to understanding them.
  6. Professionals

    Advisors: Ignore a Spouse at Your Own Peril

    Financial advisors have their work cut out for them when it comes to keeping a spouse or partner in what was formerly a couple-client relationship.
  7. Credit & Loans

    Four Ways to Improve Education In America

    U.S. students place 27th in math and 20th in science out of 34 countries. The United States must reform its education system or harm future economic productivity and global trade competitiveness.
  8. Savings

    A Look at the Cost and Tax Treatment of College

    Is there more we can do to improve the affordability of post-secondary education? We take a look at how students and colleges are taxed today.
  9. Budgeting

    The Millennial’s Guide to Personal Finance

    It's a Millennial money minefield out there! Navigate it with these money management tips.
  10. Credit & Loans

    10 Ways to Manage Student Loan Debt

    How to manage those pesky payments as you embark on adult life.
RELATED TERMS
  1. Generation X (Gen-X)

    Generation X or Gen-X is the name given to the generation of ...
  2. Good Student Discount

    An auto insurance policy discount available to young drivers ...
  3. Whartonite

    A graduate of the Wharton School of Business at the University ...
  4. Digital Immigrant

    People born before 1985 and who have adopted technology at a ...
  5. Digital Native

    Digital native is a term coined by Mark Prensky in 2001 used ...
  6. Gamification

    Gamification describes the incentivization of people's engagement ...
RELATED FAQS
  1. Can my IRA be used for college tuition?

    You can use your IRA to pay for college tuition even before you reach retirement age. In fact, your retirement savings can ... Read Full Answer >>
  2. What are the long-term effects of delinquent accounts?

    Delinquency occurs when borrowers fail to make payments on their loans. All loan borrowers should do their best to avoid ... Read Full Answer >>
  3. What are the differences between delinquency and default?

    Delinquency and default are loan terms that describe failure to make a required payment. A loan in delinquency occurs the ... Read Full Answer >>
  4. When capitalizing interest, will interest accrue while you are in a deferment?

    When capitalizing interest, interest accrues while a person is in a deferment of his loan. In the event of a deferment, the ... Read Full Answer >>
  5. Why is more interest paid over the life of a loan when it is capitalized?

    More interest is paid over the life of a loan when that interest is capitalized because the capitalized interest is added ... Read Full Answer >>
  6. What does the American Dream mean to different generations?

    The American Dream at its core is the belief that every generation should enjoy greater prosperity than the generation before ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!