After the excitement and celebration of graduation, college grads are quickly thrust into a world of new and intimidating realities. Along with the stress of first jobs, paying bills and navigating post-graduate life, they quickly find themselves facing encroaching due dates on their first student loan payments.
It can be a lot to handle, especially for those adhering to a budget for the first time and staring down high monthly payments. Even more frightening, there is a heavier debt to pay should you make a payment late or miss one entirely, with potentially far-reaching and devastating consequences.
But even with student loan debt reaching higher levels each year, new graduates do not have to be crippled by those monthly payments. With some planning and careful consideration, you can shorten your expected time of repayment by years, all without leaving a gaping hole in your wallet.
To start post graduate life on the right foot, here are some tips and tricks to keep your loan balance in check.
Be Aware of Your Loan Status and Repayment Plan
It would be impossible to find the most efficient plan for your repayment without knowing all the specifics of your loan repayment requirements. That can wind up costing thousands of dollars in the long run before realizing your mistake, especially if you accidentally default on your loans by making a late payment or missing one completely.
That is why it is imperative to know the ins and outs of your loan status. You should be sure you know each loan that you owe, where it comes from (if it is federal or private), and your expected payment schedule.
Any federal loan you accept will also require you to go through exit counseling after you graduate. This will guide you through available repayment plans, the process and other important information. File and keep track of this information and any other documentation regarding your loans, including the names and contact information of any representatives from your lenders you might speak with. Also be sure to keep all documentation for each monthly payment so you can quickly produce it should you need to.
Federal Student Aid offers a loan calculator which can calculate your expected repayment debt by looking at your existing loans, their repayment status and what the accrued interest will be. You can use this to gain an understanding of when you can expect to be officially student debt-free. This is also a useful tool to help you determine which of the available repayment plans are best for you, your lifestyle and your budget. You might find that you are not signed up for the best plan for your unique circumstances.
Explore Your Repayment Options
You have more options than you may think in your loan repayment plans. The circumstances of your life, job and size of your loans are all significant factors in your payment, and what works for one borrower may not be the best option for another.
Consider looking at alternative plans that might be a better fit for you, such as income-driven repayment plans. Federal loans offer different types of income-driven payments, including pay as you earn (PAYE) or the revised pay as you earn plan (REPAYE) introduced in 2015.
It’s important to keep in mind, however, that these plans do often lengthen your repayment period and can mean raised interest levels that may cause you to pay more long-term because of lower monthly payments. But if you have unsteady work or inconsistent income, these plans may be helpful. Just be sure to do your research about the implications of each loan, or talk to an expert to determine the best option for you.
Consider Consolidation and Refinancing
Consolidating your student loans can help make your federal student loans more manageable, reducing some of the biggest stresses that come with student loans. Consolidating means all your loans would be distilled into one total balance, meaning making just one monthly payment.
However, as with many loan options, federal consolidation is not a one-size-fits-all solution. Depending on various factors, it may mean extended your expected repayment date or raising your interest rates. You should be sure to use studentloans.gov to find out what your monthly payment would be under consolidation and compare that to what it is without.
Private refinancing and consolidation involves a private lender paying off your current loans, then combining the loans into one. Refinancing means that a borrower can seek lower interest rates and a faster repayment plan, so it can be a strong option for people with a stable living and job situation. However, you will lose the benefits and flexibility of federal loans. Refinancing is also heavily based on a set of factors including credit, financial status and more; again, you must explore what effect refinancing would have on your unique situation.
Pay More Than the Minimum if You Can
Once you have found your minimum monthly payment, make an effort to go beyond meeting that minimum each month. This may mean compromising some luxuries, such as a few Starbucks coffees or a meal out each week. However, ridding yourself of the burden of debt sooner will make these slights a worthwhile investment.
It may be helpful to set up a monthly automatic payment above your minimum as well. You can always adjust your payment if you are going to be short on finances in a particular month, but this strategy will make it easy and convenient to add something as simple as $20 or $30 extra to your payment. It may not seem like much, but it will add up quickly. You’ll be helping yourself without having to make an active effort; you may even forget you adjusted the amounts in the first place!
Also be sure to keep your student loans at the front of your mind when you come into a financial windfall thanks to a birthday, holiday or annual raise. Rather than spending the extra dough on a treat for yourself, tempting as it might be, set aside some money to make a big loan payment. You can still treat yourself, but setting aside some to help repay your loans faster is one of the best gifts you can give yourself.
Pay Off High Interest Loans First
If you opt against consolidation or refinancing, be sure to find out which of your loans has the highest interest rate, and work towards repaying that first. Work down from the highest interest loan you possess, which can save hundreds of dollars you would lose by paying it off later.
This is a small step, but a great strategy to make sure the most costly and burdensome loans are the ones you get rid of first. For reference, typically private student loans have the highest interest rates.
Set Up a Budget
Being acutely aware of your financial status is another small but necessary step for any recent graduate. This may be your first time handling an income, bills, or being responsible for all your own finances.
Setting up a weekly or monthly budget will ensure you know how much you can spend before you risk defaulting on a loan or falling short on a big monthly payment. Record all your expected monthly payments, and find the difference between that and your expected earnings. That can be your budget for luxuries including movies, nights out with your friends, restaurants, etc.
Again, do try to account for paying more than the minimum on you student loan within that budget. It will hurt to see the cash come out of your pocket now, but every extra dollar paid off means you’re closer to maybe foregoing the budgets and indulging in something you really want to do or buy. And once you’re rid of your student loans, you’ll know you really earned it.