How To Tackle Your Student Loan Debt

Students are well aware that they have to take out loans to pay for increasingly expensive tuition. What they are not prepared for, generally, is how to handle their student debt once they have it.

These basic steps will help you better understand how to begin to tackle your student loan debt.

Know What Loans You Have

Many current and former students who have student loans never understood what they were getting into in the first place. At the time, the decision to use loans to pay tuition is one of necessity, so the amount of and terms of the loans don’t seem immediately important.

Now they are. When you’re looking to pay off your student loans, the first thing you need to do is take inventory of how many loans you have, what type of loans they are (i.e., federal or private, for starters), what their current status is and what their interest rates are. Only then will you be able to create a plan of attack.

Understand Payment Options

Student loans often have payment options that depend on factors like income, if you’re a student, life changes and even your career.

If you have a federal loan, take time to browse the several payment options available. Federal loans offer plans that are sensitive to no or low-income persons. They clearly lay out which loans are eligible, what monthly payments will look like and additional information on eligibility and how to adopt a certain plan.

Additionally, be sure to make use of their repayment estimator tool to understand the long term implications of your repayment plan.

For reference, below is a chart of the national averages for federal student loans at four-year schools. This data is based on standard repayment plans, which is a ten-year plan of consistent monthly payments. All information is based on current national averages and interest rates.

 Type of School  Attended  Average Loan Principal  Interest  Monthly Payment  Duration of Repayment  Total Paid
 4-year, public school  $26,946  3.9%  $272

 120 months (10 years)

 $32,585
 4-year, private school, not-for-profit  $29,214  3.9%  $294  120 months  $35,327
 4-year, private, for-profit  $34,722  3.9%  $350  120 months  $41,988

Pay Off Principal First

Interest begets more interest. In other words, once your loans start accruing interest, interest payments will likely get progressively larger. This is more commonly known as compounding interest and it’s a borrower’s worst enemy (besides the actual interest).

If your loans are compounding interest, that means each time interest accumulates on your loan amount it will technically be added to your principal loan amount (the initial amount you borrowed). So, the next time interest is calculated, it will be off of a larger amount. You’ll start to pay interest on interest.

That’s why when you start paying off your loans, it is important to designate payments you make to go towards the principal amount so that you’re not fighting against the interest rate on the loan. Usually, if you make a payment larger than the minimum amount the extra will be applied to your principal. Double check with your lender to make sure this is the case.

Avoid Other Debt

Unfortunately, student loan debt is effectively no different than any other debt. While lenders exhibit some leniency towards students in the payment structure and period for the loans, student loan debt carries the same impact on your credit score.

Piling debt on top of debt is never a wise move for the health of your long term finances, so avoid using credit cards extensively, especially if you’re having difficulty managing them. Additionally, try to wait to incur more large debts, like mortgages and car loans, until you have a handle on your student loan payments.

Refinance

If your credit score is healthy enough, immediately look into refinancing your student loans. For some reason, interest rates on student loans are often much higher than market rates for other loans. Once you’re out of school, see if a reputable bank or lender can refinance your loans with a lower rate. Lowering your rate any amount -- even as seemingly little as half a percentage point -- makes a big difference.

If you can’t get your loans refinanced, keep working on making positive progress towards loan payback through the ways above. It’s a long, daunting process, but like anything else, it starts from day one and finishes through the accumulation of each little action you take every day, week and month.

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