Even the most ambitious college grad might have some trouble getting excited about this one: repaying student loans. And with the average graduate leaving college with $27,204 in student loan debt, that day is sure to come for many a young professional.
So yeah, maybe you’d rather poke your eye out than think about repaying your loans. But if you don’t spend some time figuring out your best strategy, you might be making higher repayments than absolutely necessary. That’s right. You might be able to take home more bucks each month.
How’s that possible? Check out these tips on how to take your student loans from overwhelming to under control:
1. Don’t freak out, advises The Project on Student Debt. If those loans are a huge pain because of unemployment, health problems or other unexpected financial issues, you have options to delay payments until you get back on your feet. A deferment or forbearance might be right for you, but consult your lender and make sure you understand the terms of postponing your payments.
Keep in mind that interest accrues on all types of loans during forbearances, and on some types of loans during deferment, which increases your total debt. If you can afford it, consider making interest-only payments.
2. Stay organized. If you have a mess of private and federal student loans, it can be difficult to keep everything straight. The government’s National Student Loan Data System tracks all your federal student loans, which makes it just a little bit easier to stay on top of who you owe and how much.
3. See if you qualify for debt forgiveness. Who said there are no free lunches? Depending on your field, you could qualify to have part of all of your federal student loans cancelled. If you do volunteer work, you could also qualify for loan forgiveness. See FinAid’s student loan forgiveness section for details.
4. Consolidate, but with caution. If you’re struggling to make your monthly payments, consolidating your loans can make your life easier by giving you a single, lower monthly payment and more repayment options, but there are caveats. This Forbes article breaks down the pros and the cons.
5. Tackle private student loans first. Private student loans almost always have higher interest rates and less repayment flexibility, so it’s best to address those loans first, says Miranda Marquit, a personal finance writer for Yielding Wealth. “We really don’t want the interest capitalized (meaning the interest accrued is added to the principal and then more interest is paid on the interest),” Marquit writes.
6. Pick up the phone. If you’re having trouble keeping your head above water with student loans, just communicating with your lender can cut hundreds of dollars from your monthly payments. Keep in mind when switching payment plans that the length of the plan could mean more interest costs over time.
7. Set up automatic payments. It’s easy to get caught up in the day-to-day rush, but missing a payment can result in killer late fees. It can also prevent you from getting a lower interest rate — many loan services will take off a quarter of a percent after a designated number of on-time payments.
Check with your lender or bank to see if they offer automated payment programs.
8. Overpay if you can. Times are tough financially for everyone, but if you can scrape together a little extra money and put it toward you loans, that little bit each month can add up to a lot over the long term. “It’s amazing what even an extra $50 per month can do for debt eradication,” according to a post on My Dollar Plan. “[It] saves you $3,000 on consolidated loans and about $1700 on non-consolidated loans.”
9. Check out whether you qualify for income-based repayment (IBR). If your federal student loan debt is high relative to your income, income-based repayment could help alleviate the pressure of repayment. If your total student loan payments for the year are higher than 15 percent of your annual income, you can have your loan spread out further and your monthly payments lowered.
Another perk? If your IBR payment is less than the monthly interest that accrues on the loan, the government will pay your unpaid interest for up to three years, according to the Student Loan Network. If you are still making IBR payments after 25 years, your debt is forgiven.
10. Don’t let loans prevent you from pursuing your entrepreneurial path! There are programs specifically designed for entrepreneurs and the Small Business Administration can also help set you up with a plan to help launch a business while keeping current on your student loan payments.
Meg Handley is a writer and online journalist who covers a wide range of money and business topics including economics, investing, and real estate. She lives in Washington, D.C. and tweets as @mmhandley.