Graduating from college is a huge achievement, but the learning doesn’t end with a diploma. Paying off student loans is challenging for even the brightest graduates. By learning a few key strategies, though, graduates can pay off their loans responsibly and worry-free.
The two major federal lenders offer grace periods before payback begins. Stafford loans allow borrowers six months and Perkins loans allow borrowers nine months before repayment begins. Here are 7 tips graduates can use to help manage their college debt.
- Understand exactly how much is owed. Many students receive loans from multiple sources and they may not know the total cost of their loans. Review the actual loan amounts and monthly payment schedules. You can find federal loan amounts at the National Student Loan Data Center. No such central database exists for private loans.
- Speak to loan servicers. Call the loan servicers to update addresses and ask detailed questions about repayment. The financial aid office can also be an invaluable resource for learning about repayment options.
- Create a budget. Look at cost of living, salary, monthly expenses and other outstanding loans to create a manageable and realistic plan.
- Suggest paying off credit card debt. It’s important to understand that paying off high-interest cards should be a priority.
- Study repayment options. Federal loans offer three repayment plans: graduated, extended or income-based. Graduated plans offer low payments at the start and then increase every two years. Extended plans allow for a 25-year repayment period, compared to the 10-year average for most college loans. Income-based plans are based on a percentage of a graduate’s discretionary income. Weigh the pros and cons of each option before making a selection.
- Consider consolidating loans. Loan servicers offer loan-consolidation programs that may reduce interest rates.
- Graduates should understand the importance of credit reports and scores. Many young adults are not aware of how their student loans will affect their credit scores. They should learn how the system works and what they can do to keep their credit scores high.
Young adults should use the grace period after graduation and these 7 strategies to start building a strong financial future. These are invaluable lessons that will last lifetime.