Does it surprise you that 86% of 4-year undergraduate students who apply for federal student aid will borrow money to go to school? With average student loan debt hovering over $23,000 for graduating seniors, it’s easy to see how so many people can be affected by the burden of student loan debt.
If you were a May graduate, your six-month grace period is ending and those student loan payments are going to kick in within the next month or so. Now’s the time to take control of those debts and these tips will get you on the right track to paying down those debts faster than you can imagine.
1. Get Organized
For those students who are in school right now, do yourself a favor and stay organized. Create a separate folder for each lender you use and file each notice you get from them.
If you’re out of school, you should be getting summaries in the mail about your payments and current balance. Be sure to organize those and keep the online account login username and password in a place you can access if you forget what they are. We use a financial snapshot to organize our account information, and it’s saved us the headache of resetting our password when we forget what it is.
Bonus Tip For Getting Organized
If you’re in school, open a separate checking account for your student loans and only use this account for school expenses (not eating out or other things you should pay for with money you earn.)
I was foolish my freshman year and saw a surplus of $500 in my loans account. Instead of using it the next year for school expenses, I withdrew it to ‘live on’ during the summer. I didn’t really need it, and encourage you to keep those accounts separate and designated only for school expenses.
2. Build a Loan Payment Account
My wife and I opened a savings account at our bank and told our loan provider to draw each month’s payment from this account. Before the payment is drawn each month, we automatically move money from our checking account into the savings account. This helps us to keep the loan payments separate from other bills and automates it for us.
One thing that has helped us tremendously is to keep a buffer in the savings account. If an emergency comes up and we can’t move money from our checking account fast enough, the buffer in the savings account will take care of the student loan payment. We try to keep an extra $500 in the savings as a buffer, but you may need less depending on your loan payments.
Bonus Tip For Creating a Buffer
If you automate a transfer from your checking account to your savings, round up the payment to the nearest round number plus $10. The loan payment that’s withdrawn from the savings account will remain the same, but you’ll build a buffer in your payments account that way. This way, you’ll be prepared in case you run into trouble one month and can’t seem to make a payment.
3. Budget for the Payments
Log into your lender’s website and look for the ‘calculate my payment’ link. They should provide you with an estimate of what your payments will be. (I’d encourage you to do this while you’re in school too!)
With your payments in mind, you should be able to anticipate how your budget will be affected. Use the six-month grace period to your advantage and try to tweak your budget to include the loan payments. Set aside that monthly payment during the grace period and use that to build an emergency fund before you have to really start making payments.
Bonus tip for Budgeting the Payments
If you don’t think you’ll be able to afford the payments, you can apply for Income Based Repayment through your lender. Income Based Repayments (IBR) lengthens the repayment of your loans and lowers your payments according to your adjusted gross income and loan amount.
4. Snowball the Loans
Dave Ramsey popularized the debt snowball, and it works great for paying down those pesky student loans. You’ll probably notice that your loans are broken into a few different types (Stafford, unsubsidized, Perkins, etc), have different rates, and have different lenders. If so, you can use this to your advantage and eliminate the small school loans with extra money you make. Paying down a small loan completely will free up that payment, allowing you to snowball the next biggest loan.
Bonus Tip for Snowballing Debt
If you’re looking for a way to track your loans and see how the debt snowball will work for you, download this free debt snowball spreadsheet provided by J.D. Roth at GetRichSlowly.org.
These tips have worked for us and I hope they work for you too! How have you managed student loans? Meet you in the comments!
Image by Dmitry Kalinovsky/Shutterstock
{ 11 comments… read them below or add one }
It is also really important to start thinking about those loan payments before leaving school. It is so easy to just forget and push it to the back of the time. This can just encourage frivolous spending and make the debt even worse down the road.
Absolutely Juan. If a student can earn extra money and pay down a loan while they’re IN school, it’ll make repayment much easier after they graduate.
This is a great article! I think we all have student loans! I am going to try the debt snowball method as I try to eliminate them for good. Having placed myself in this debt, I would strongly advise anyone entering school to cut their expenses and purchases down to the bare minimum, and live life as simply as possible. Think of any loan you may have to take out as for tuition only, but if you can try to avoid loans altogether, even if it means working while in school and finishing school a little later. You’ll be so happy you did!
Thanks Christy! I think Dave Ramsey said something like this: live like a student now or you’ll live like a student later.
We started married life with over 20K in student loans. The payments added up to more than our first mortgage. It seemed like “free” money when the loans were disbursed to us in college, but there was a steep price to pay after graduation.
I don’t know if there is a place to see what your payments will look like or if your comfortable asking others but this information will be golden to you. The more you can do to avoid these loans, the better off you’ll be after you finish school.
Either way, they eventually do get paid (ask me how I know)
I hear ya, Mary. It seems like monopoly money and I wish more students would take the advice of financial counselors and go easy on the loans.
If you miss a payment, even one, you could get hit with late-payment penalties. And if you skip paying for extended periods, you could fall into default, which could damage your credit history and make it more difficult to get a credit card, finance a car or buy a house.
I can’t tell you how many times I’ve heard recent college graduates talk about taking the entire 10 years to pay off the loans. They see the payment as “harmless” and the payment do-able.
I wish more would get fired up to pay it off early!
Overheard last week at a restaurant, a group of young military trainees were talking about marriage. One said, “Even if she’s a doctor, I would hesitate to date someone with over $100,000 in student loan debt.”
10 years of repayments is painful – especially when you think of all that interest being paid. With student loan rates around 6.8%, it’s very expensive money to borrow.
I had to chuckle at that last statement of those people at the restaurant. My wife is going to be a doctor and we’ll have well over 200k in student loans. Does it sound scary? Absolutely! But if you live within your means, you can manage student loans.
I did the same thing freshman year. After paying my tuition, I have about $1,500 “left-over”. I took the money and used it to live – mostly for fun though. Looking back, I wish I had left it alone to be used for upcoming tuition bills.
Also, a word to anyone reading this and still in school: find ways to earn money so that you can keep your student loans to a minimum. It may be more fun to hang out with friends instead of working a part time job, but it will be worth it in the end. After graduating, you will be free from your student loans much faster, freeing up money for house down payments and retirement savings.
One other tip related to student loans is to make sure you let your loan processor know about any change of address. A friend who works as a mortgage broker told me it’s common for people to get turned down for a mortgage because of a low credit score that came about through missed student loan payments. The person graduates from college, moves into an apartment (the few that don’t move back with their parents, that is!), and somehow forgets to let their student loan processor know about their new address. So, when their notice that payments are now required is mailed, it comes back as undeliverable and the problems begin.