10 Tips for Managing Your Student Loans

Many college students wake up from their 4-5 year undergraduate daze in their old room at their parents’ house, covered in a cold sweat after a horrific nightmare in which they realize that the real world is upon them and they are buried under a mountain of debt and student loans.

As a student it’s easy to fall into a habit of taking on student loans. Their payment seems so far away and the future is sure to bring great wealth and prosperity. College students don’t realize that unless they immediately enroll into graduate school (which most don’t) there is a lag time between graduation and the high paying job. During this bump in the road it’s easy to lose control of your student loan debt.

Whether you’re still in school or you already graduated and you’ve found yourself in the situation that I just described, these 10 tips can help you manage and maintain your student loan debt.

1.    Know Your Loans: The most crucial step in keeping control of your student loans is to know the circumstances of all your student loans. How much you owe, who you owe it to, when payments are due, how much you pay per payment and when do the loans expire? Keeping careful and diligent records of your loans and payments is crucial to keeping your head above water. It is also important to know whether you have federal loans or loans from a private company as this will determine your repayment options.

2.    Know Your Loans’ Grace Periods: The grace period of your loan is how long after you graduate before you have to start repaying the loan. If you have different loans they very well may have different grace periods. Again, knowing the terms of your loan, in this case how long before you must start paying it back, is crucial to avoiding fees and penalties.

3.    Consider Your Repayment Options: Federal student loans will automatically come with a 10 year loan repayment plan. However, if this doesn’t suit your needs there are other options that you can switch to. Extending repayment will lower your monthly payment but greatly increase the amount you pay in interest in the long run.

4.    Early Payment: If you are in the position that you can pay extra towards your student loans then you should definitely aim to pay off the most expensive student loan first. Don’t pay a little more towards each of your loans, put all extra resources towards paying the most expensive loan off and pay the regular amount for all your other loans. The most expensive loan will carry the highest interest, so by paying it off quickly you will save what you would have had to pay in interest. In general, the quicker you pay the more money you will save.

5.    Lower Your Principal: If you are able to pay more than is required towards your student loans you should look into lowering your principal. The principal is the total amount you owe. Unless you specifically request to lower your principal any extra you pay will simply be put towards your next payment. By lowering your principal you will lower the amount you will owe in interest.

6.    Having Trouble Making Payments? If you get into financial trouble and you’re looking for solutions it’s important to understand your options. First of all, if you are struggling to make payments due to unemployment, health problems or any of a variety of unexpected pitfalls, know that you can temporarily postpone payments on your federal student loans. If you are considering filing for bankruptcy it is important to know that this will not wipe out your student loan debt.

7.    The Consequences of Defaulting on Student Loans: Defaulting on your loans can have dire consequences. After nine months of non-payment you are in default of your student loans. At this point your credit score will drop dramatically, your entire loan becomes due and the total amount you owe will increase. The government may begin garnishing your paychecks and seizing your tax refunds to pay off your loans. For private company loans default will kick in much sooner and any co-signer on your loan is also at risk of repercussions.

8.    Loan Forgiveness: There are various options available for loan forgiveness. However, this only applies for federal loans, not those issued by a private company. Loan forgiveness plans will kick in after a considerable time has elapsed, usually 10 years or 20 years. If you qualify, whatever you still owe after the 10 or 20 year period will be forgiven. These plans are offered to specific professions like government employees, teachers, nurses and Peace Corps volunteers, for example.

9.    Pros and Cons of Loan Consolidation: Student Loan consolidation allows you to combine all your loans so you have only one monthly payment with a fixed interest rate. As of 2006 all federal loans come with fixed interest rates. If your loans are from before 2006 you may have a variable interest rate in which case you might benefit greatly from consolidating your loans and having the fixed rate. The down side of loan consolidation is that it will extend the period of repayment thus you will be paying more in interest in the long run. However, if you are struggling to make your payments consolidating your loans will lower the amount you pay monthly.

10.    Communicate with Your Lender: If you move, change jobs, or change phone numbers let your loan lender know. It is your responsibility to make sure they can find you. If you’ve moved without having your mail forwarded to your new address a missed payment will result in a penalty fee. Don’t treat communications about your student loans like junk mail or telemarketing calls. You have a lot of money at stake in your loans and whoever is trying to contact you might have a problem with your loan or perhaps has an offer to somehow save you money.

Keep in mind that your student loans can be flexible. They are more fluid than set in stone. Understanding your situation, knowing the terms of your loans and being aware of your options will allow you to manage your student loans in the most financially efficient way possible.