How to Manage Student Debt

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Graduating from college should be fun, but it can be a hard milestone to celebrate with a lofty student loan debt saddled to that diploma. Student loan debt is one of the biggest financial problems facing today’s young adults. In 2019, student loan debt in the United States reached an all-time high of $1.4 trillion, peaking at the youngest age among all credit products including credit cards, auto loans, personal loans and mortgages. Education is essential to increasing your lifetime income, so you shouldn’t feel bad for borrowing for your degree. It is vital, however, to ensure that your student loan debt doesn’t damage your future before you’re even able to get started.

Understand Your Loans

The first step in managing your student loans is to really understand what you’re dealing with. It can be tempting to turn your brain off, simply make the minimum payment and not give your loans another thought. But if you want to actually make an impact, you need to know how your loans work.

Gather All Loans and Calculate the Total

Many students graduate with a variety of loans, both federally sponsored and private. Time to assemble any loans you have taken out and do some math—only by knowing your total debt can you develop a plan to pay it down.

Know the Loan's Terms

It is also important to itemize the terms of every loan. Each one could have different interest rates and different repayment rules. You'll need this information to develop your payment plan and avoid any extra interest, fees and penalties.

Review Grace Periods

As you pull together the specifics, take note of each loan’s grace period. This is the amount of time you have after graduation to start paying your debt back, granting you time to get financially settled.

Pay Off Higher Loans First

Similar to any debt-payoff strategy, it is always best to pay off the loans with the highest interest rates first. This is common if you’ve taken out private student loans, which tend to have higher APRs than federal loans.

Consider Consolidation

Loan consolidation allows you to combine multiple federal education loans into one loan. It often lowers the weight of your monthly payments and frequently lengthens your payoff period, which can be a mixed benefit: more time to pay the debt, but more interest payments, too.

Pay Down the Principal

Another common strategy is to pay extra principal whenever you can. The faster you reduce the principal, the less interest you will pay over the life of the loan. Since interest is calculated based on the principal each month, less principal means a lower interest payment.

Look into Loan Forgiveness

In an effort to attract the best talent, many employers now offer help with student loan payments as a standard workplace benefit. Also, depending on your industry, you could also be eligible for a student loan forgiveness program. For example, those in a public service career usually qualify for loan forgiveness after making payments for 10 consecutive years.

Post-Grad Budget

You may be out of college, but it may not be time to quit living that “college-lifestyle.” While it’s not necessary to scrounge on ramen and macaroni and cheese, it is important to face the reality of your debt situation and take active steps toward paying off your loans. Develop a reasonable post-grad monthly budget and stick to it. When making your budget, try to trim anything you can and put that additional money towards your debt, and any extra money at the end of the month should go straight into your payoff.

Avoid Additional Debts

The next phase after graduation can get expensive. You may have goals of purchasing a car or home, or even marriage. This is an exciting time with big life milestones, but if you’re already dealing with overwhelming student loans, going deeper into debt for these goals isn’t the best move and they may have to be modified for the time being. Taking any one of these steps can help to lessen the stress of student loan debt. The only bad option if you are having difficulty paying back your student loans is to do nothing and just hope for the problem to disappear. It won’t, but your creditworthiness definitely will.

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