If you’re a college graduate, you probably have a fair share of student loan debt. Whether you’ve been out of school for years or are about to earn that diploma, there are several ways to handle your student loan debt so you don’t feel like you’re drowning.
It doesn’t matter if making that monthly payment is a minor headache or a true burden — ignoring the problem is never the right answer. Instead, take control of your student loans by following these tips for keeping them on track no matter where you are in the repayment process.
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Understand Your Loan Terms
One of the first things you should do as you approach graduation (or even well afterwards, if you’ve never done it) is to fully understand your loan terms. Start off by identifying your lender. For federal loans, you can find yours in the National Student Loan Data System. For private loans, you can probably rely on your lender contacting you, but in the case you can’t find the information, simply check your credit report.
All of your outstanding loans and servicers will be listed so you can find out your specific loan information. This is also helpful if your loan has been sold to a different servicer from the original. To get your credit report, all you have to do is go to AnnualCreditReport.com.
Enter in your social security number and answer a few security questions and you can download a copy on the same day. From there you’ll want to confirm your interest rate on the loan, how long the repayment period lasts, and what your monthly payment amounts to.
Make Payments During Your Grace Period
Many student loans, particularly federal loans, offer a grace period after graduation. You can wait a predetermined length of time before making loan payments. Depending on the type of loan, interest may or may not begin accumulating during this time.
Grace periods typically last six months and give you time to find a job. They let you get settled into your new life after college without the the extra burden of worrying about your student loan debt right away. But if you already have a job and can afford it, get into the practice of making those monthly payments right away.
You can put a sizeable notch into your overall balance, saving you money on interest in the long run. Think about it: if your projected monthly payment is $300 and you start paying that amount right away during your six-month grace period, that would total an additional $1,800. That’s a huge amount to knock off your principal balance.
If your interest isn’t subsidized by a federal loan, you’re preventing an even larger principal from accumulating. Even if your interest is subsidized during the grace period, all of those payments can go directly towards your principal balance, not your interest.
Make a Budget
Taking care of your student loan payments is a big deal, but it’s really just one piece of a much larger puzzle. To make sure you’ve got all of your finances under control, take the time to sit down and come up with an overall budget. Start off by listing out all of your monthly financial responsibilities.
The most important items are your rent, student loans, car payments, and any other debt obligation you have. Then set a realistic, yet frugal budget for discretionary spending, like your groceries, clothing, and entertainment. Also, be sure to set aside money for savings.
You’ll want an emergency fund of at least $1,000. Many experts also recommend saving up a few months of expenses in case you lose your job. After you’ve got the basics covered, consider contributing to a retirement fund, and then think about your other savings goals. Want to buy a condo? Or backpack through South America? Map out both your long-term and short-term savings goals. It seems like a lot of work, but if you maintain a frugal lifestyle right from the beginning, you’ll build a strong financial foundation that you’ll benefit from for years.
Pay Down Other Balances
In an ideal world, you’ll graduate from college with little to no debt — maybe just a small amount of student loans that come with a low-interest rate. But in reality, it’s quite possible you have other debts as well. They might include credit cards or a car payment. You can’t just focus on one or the other. Once you take on debt, they’re all equally important to pay down. If you don’t, your credit score will be hurt for years to come.
When you’re creating your budget, make sure you include at least the minimum payment on each of your debt balances. For credit cards, try to be as aggressive as possible because even by paying the minimum amount, you’re accumulating lots of interest that could potentially take years to pay off. Look at all of your debt holistically — including student loans — to determine the best strategy for paying off those balances.
Avoid New Debt
If you’re worried about how you’re going to pay off your student loans or are simply annoyed at the money you spend on paying them each month, then do your best to follow this one piece of advice: avoid taking on any new debt. It can be tempting to charge living expenses or even the cost of going out when you’re strapped for cash. But if you can’t afford it this month, it’s unlikely you’re going to be able to afford it next month.
You’re really just setting yourself up to feel an even heavier burden on your other financial commitments as time wears on. Instead, focus on living frugally so you can get your student loans and other current obligations taken care of without accumulating extra debt along the way.
Increase Your Income
When it comes down to it, you just might have to increase your income to pay your student loans on top of all of your other expenses each month. That may seem hard to pull off, especially if you’re in an entry-level job just after college. You can certainly ask for a raise or extra hours, but it that’s not possible (or you’re shot down in negotiations) there are other ways to earn extra money.
Ask coworkers if they need a babysitter or dog sitter. Find things to sell on eBay or Craigslist. Offer tutoring services in a subject you excelled in during school. Once you get creative, you’ll think of plenty of ways to make a few extra dollars so that your student loans don’t completely drain your wallet.
Take Advantage of Tax Deductions
A quick tip when it comes time to do your taxes is to deduct the interest you pay on your student loans. You should receive a 1098-E form from your loan servicer at the beginning of the calendar year, which denotes how much of your payments from the previous year went towards interest. You can enter up to $2,500 of that amount as a tax deduction. That will save you at least a bit of money owed to Uncle Sam.
Lower Your Interest Rate
Federal loan interest rates are fixed so they can’t be refinanced to a lower rate. Historically, they have been the most competitive rates around so it hasn’t been worth looking at private lenders. However, some student loan refinancing companies are streamlining services in an attempt to become competitive with federal loan rates. Whether you have federal or private loans, it’s worth looking at other rates to potentially refinance.
This is especially true if your credit score has improved since you were approved for the original loan. And your score probably has gone up since you’ve established a credit history and made timely payments on your student loans. Another way to qualify for a lower rate is to sign up with your lender to have your monthly balance automatically debited from your bank account. You can often receive a quarter point reduction in your interest rate by making this one simple switch.
Don’t Stop Making Payments
No matter what kind of dire financial straits you’re in, never stop making your payments. Talk to your lender to see if you can refinance the loan to lower your monthly payment amount. With federal loans, you can often defer the loan or switch to income based repayment until you’re back on your feet.
You might also be eligible for loan forgiveness depending on your career path. Many public service jobs like teachers, police officers, social workers, and medical professionals qualify to have some or all of their loans forgiven if they serve for a certain number of years. Some volunteer opportunities offer the same benefit, including Peace Corps, Teach for America, VISTA, and AmeriCorps.
Your student loans are probably going to stick with you for some time. Don’t be disheartened by the monthly payments that never seem to end. Instead, understand how to handle your loans effectively so they don’t take over your life. Once you know the in’s and out’s of how they work, you might even be able to pay them off early.