Student loan debt is a significant burden for many college graduates in the United States. As of June 2023, the National Credit Union Administration reported 43.6 million graduates with a federal loan debt of $1.64 trillion. The average debt for each graduate was $38,000, making it a hard challenge for many, especially now that the COVID relief for students ended in October 2023.
Factors like inflation, high interest rates, and reduced savings have worsened the financial balance of many graduates with student loan debt. Despite these challenges, managing student loan debt is possible, which would allow graduates to achieve their financial dreams and goals without overwhelming stress.
5 Tips for Managing Student Loan Debt
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1. Know How Much Student Loan Debt You Have
The first step in managing student loan debt is knowing the total amount you will need to repay. This is key because effective repayment starts with a clear plan, and planning requires you to understand your financial obligations. A lack of a clear plan means you can easily fall behind on payments. Apart from knowing how much you owe, you also need to know who your lenders are. A good number of graduates have multiple loans, including federal loans (subsidized, unsubsidized, PLUS, and consolidation loans) and private loans, which they need to manage separately.
2. Understand the Terms of Your Loans
If you have more than one loan, you need to familiarize yourself with the terms of each student loan debt including interest rates and repayment plans. Federal loans typically offer lower interest rates and have more favorable repayment options compared to private loans. Private loans have different terms, and different financial institutions offer them. However, some may require repayment while you’re still in school.
For federal loans, each has its terms. Subsidized loans don’t start to add interest until after you graduate, and you will have a six-month grace period before you are required to start repayment. Unsubsidized loans start accumulating interest immediately after the funds are disbursed to you. PLUS loans, which are given to parents to help educate their needs, have an interest rate compared to the other federal loans. Lastly, consolidation loans enable you to combine all your federal plans into one, which allows you to work with a fixed interest rate which is based on your consolidated loans.
3. Do a Financial Analysis and Prioritize
Do a thorough and honest current financial situation analysis. Are you employed, doing side jobs, or still job hunting? Knowing your financial position is key to repaying your student loan debt. If you have multiple loans, prioritize them based on interest rates, focusing on repaying the ones with high interest rates first. If you have a six-month grace period before you can start repaying a federal loan, take advantage of that by saving or paying down the priority loans. The main goal is to pay your student loan debt as quickly as possible, reducing the interest accrued and freeing up your finances for plans.
4. Cut Down on Unnecessary Expenditure
To better manage payments on your student loan debt, financial discipline is key. The first step is creating a budget and sticking to it. Prioritize loan repayments over luxury expenses. This might mean rescheduling a vacation, delaying the purchase of a new car, or holding off on even moving out of your parent’s house. If your finances are tight, you will need to go further and cut back on seemingly minor expenses like dining out every week, impulse buying, or subscription services. You can direct every dollar you save towards repaying the debt. Remember, one unplanned purchase can set you back on your repayment journey.
5. Reduce Interest Rate by Signing Up for Auto-Pay
Federal and some private lenders provide interest rate discounts when you set up monthly automatic payments from your checking accounts. For example, the Federal Loan Program offers a 0.25% interest rate reduction for student loan graduates who sign up for auto-pay. It may seem like a small discount, but with time it can lead to significant savings which can still be used to help clear your debt. Another advantage of setting up auto-pay is you’ll never run late on a student loan debt repayment. Paying on time will save you money, for your lenders will not charge a late fee.
Final Thoughts
Managing student loan debt can be challenging, especially with the current economic uncertainties. However, understanding your loans, prioritizing repayment, and being smart with your financial decisions can help ease the burden. In addition, creating a budget, cutting unnecessary expenses, and setting up auto-pay will help better manage your debt. Having a clear plan while remaining disciplined will enable you to make better repayments that will eventually reduce stress and you build a secure financial future.
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