Advice for New Grads on How to Manage Student Loans

Congrats, college grads! After many semesters of laborious studying, countless group projects, and enough mid-term and final exams to last you for a lifetime, you can hold your head high and proudly tout your official college degree. Flip that tassel baby, you earned it!

Despite the inevitable probability that I will be seen as a killjoy after I mention what I?m about to, I am compelled to take a moment to discuss the unavoidable student loan repayments looming in your 6-month future. This topic is a very important one for me, and not only because the Federal Reserve Bank of New York recently stated that 37 million Americans carry some sort of outstanding student loan balance. It?s also not because of those 37 million, 14% or 5.4 million people had a minimum of one past due student loan account. It?s mainly because I was completely unprepared for the big bad world of loans, credit, and interest as a college grad myself. We never talked about money in my house, and in fact my folks took out numerous student loans in my name without discussing it with me. When I graduated as a senior, I had no idea to whom I owed money, or even how much I owed.

That, my friend, will not happen to you if you heed the advice in this article. Please by all means revel in your newly earned alum status, but take some time to put attention on your personal student loan situation and I promise you will thank me later.

First, Find out What You Owe

The first step to getting a handle on your loans is knowing how much you owe, and to who. If you don?t already know, the National Student Loan Data System (NSLDS) has a search tool that can help you locate any federal student loans taken out in your name. If your parents took out private loans, make sure you track those down too. The end result of this exercise is knowing exactly how much you owe in student loans, and to which lenders. After this, you can move on to the next step: budgeting to pay them each month.

Build a Budget

You are probably feeling free as a bird now, with college behind you and all the opportunity in the world ahead of you. And you should feel this way! But bear in mind that in six months from now, your student loan installments will kick in (around November for most recent grads.) Six months might seem like a long time, but it is critical to plan now for them. Building a budget is a terrific way to get your finances in order so that when the loan payments kick in, you know how much per month you?ll need to be earning and setting aside to cover the payments. The American Student Assistance organization has a fantastic tool that will let you plug in how much you owe in loans, the interest rate, and the length of repayment period and it will calculate how much you need to be making per hour, per month, and per year to afford the payments. If you find that the monthly installment rates are way outside of your budget, now is the time to look for a second job or consider lowering your payments (but believe me, use this as a last-ditch option. It will only end up adding even more interest to your loans, costing you more in the long run.)

Enroll in Auto Pay

The wisest and easiest way to make monthly payments to your lenders is through automated electronic payments. Not only does this method drastically lessen the risk of missing payments and having your account become delinquent or overdue, some lenders even offer small rewards for paying electronically. Deductions in the amount of interest are common. But most importantly, it is a surefire way to make sure your loan gets paid each month, on time. Trust me, the last thing you want is for your account to become past due. This will deliver a hard hit to your credit score, and the longer your account is overdue, the more interest will accrue. On the other hand, making timely payments each month actually will help build your credit history and boost your credit score, which will come in very handy when you want to take out a car loan, purchase a house, even rent an apartment.

Consolidate your Loans

This is only an option if you?ve taken out federal loans (you can?t consolidate a combination of federal and private, and most private lenders don?t allow consolidation.) The benefit to consolidating is being able to have to make just one payment each month, and if you are having difficulty paying the monthly minimum, you could stretch out your repayment term. But remember, stretching it out will reduce your monthly payments for the time being by as much as a third, but the interest will double if say you take your loan from a 10-year to a 20-year repayment term. This piece of advice isn?t for everyone, so assess your personal situation to see if it is in your best interest.

Consider an Income-Based Repayment Plan

The federal government offers something called an Income-Based Repayment Plan (IBR for short), which calculates your monthly repayment amount based on your income and family size. The U.S. Department of Education would take into consideration your monthly take-home income, the size of your family and dependants, as well as where you live to see how much you can afford to pay towards your loans each month. If you qualify, you would pay the lesser amount. Another perk of this option is that after 25 years of payment this way, your debt is eligible to be forgiven completely. Visit StudentAid.ed.gov to see if you qualify for IBR.

Don?t Forget to Report Loan Interest at Tax Time

Many new grads don?t know that they can get a student loan interest deduction from the federal government when it comes time to file taxes. Go to the website of your lender to print out or access tax document 1098-E to find out your deductible interest amount for the previous financial year, and make sure to report it when you file taxes in the spring. Just don?t fall over when you see how much interest you paid in a year!

That?s all I?ve got, grads. For more advice, visit websites like MappingYourFuture.org and GraduationDebt.org.

Dk is an active blogger who writes about personal finance and the economy. To read more of his work, visit RoadFish.com

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