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5 Student Debt Tips for New Grads

By on June 28, 2015
Categories: COLLEGE PLANNING, KIDS & MONEY

It’s graduation season which means a new crop of college graduates will be streaming out into the working world with student debt.

Roughly two-thirds of college students, who graduate this spring, will have borrowed money for their education.

It’s important that graduates start off their new lives on the right track financially. And one of the best ways that they can make sure this happens is to start repaying their student loans.

Here are five tips for grads who need to repay their loans:

1. Know what you borrowed.

It’s critical that graduates know just what they’ve borrowed and from whom. This could be harder than you might assume. Students, for instance, will often take out two different federal college loans per semester and some borrowers also rely on private loans.

Luckily, borrowers can locate all their federal students loans in one place – the National Student Loan Data System. Unfortunately, this system does not include private college loans so those will need to be tracked separately.

2. Start repaying on time.

Borrowers are expected to start repaying their federal student loans within six months of graduating. Before that date, graduates need to decide on the best federal repayment plan. The standard repayment period is 10 years, which will be the option that generates the lowest overall cost.

Students can use the federal loan repayment estimator to help choose the best option.

3. If necessary, use a safety net.

For students whose debt load is higher than their annual income or a significant portion of it, the federal government offers a repayment program called Pay As You Earn. With this program, grads can start repaying their federal loans based on how much they earn rather than how much they owe.

Borrowers can check their eligibility for Pay As You Earn by using the federal loan repayment estimator above.

4. Resist postponing your loan.

Unless grads are experiencing financial difficulty, they should make it a priority to pay off the loan.  According to a recent report by the New America Foundation, some borrowers delay paying back their federal loans – via deferment or forbearance – simply because their loan servicers, mortgage brokers or even the IRS tell them they can. It can just take a phone call to get a delay.

While it’s relatively easy to postpone payments, borrowers often don’t realize that interest continues to accrue on these loans which only makes the repayment more painful ultimately.

5. Don’t treat student loans differently.

Student loans can be problematic because they are different from other types of lending. When you buy a car or house, for instance, you know how much you are borrowing and what the monthly payments will be. Students, however, borrow over a period of years and can easily lose track of how much they owe.

The penalties won’t seem so readily apparent either. If you stop paying your mortgage, you lose your house. If you stop making student loan payments, you don’t lose your degree.

Learn More…

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