Managing Student Loans: 5 Ways to Make Repayment Less Painful

The following is a guest post from Nicole White, who writes at Web Design Schools Guide.

Whether you went to an Ivy League school or a small state college, school loans can take a heavy toll on your finances post-graduation. While the cost of college is still one of the best investments out there, repaying the loans once you’re out can be tricky, especially for those who’ve never been on their own with financial management. Here are some tips that can help you deal with this debt and give you the skills you’ll need to manage any other big financial decisions to come.

1. Make it a priority. While paying off student loans may be the last thing you want to do with your new paychecks from work, it should be at the top of your list. Carrying around the debt will only cause it to accrue more interest and cost you more in the long run. Work out a payment plan for yourself that ensures you’ll pay off your loans before you’re old and gray.

2. Consolidate. If you have a variety of loans, one way to make your payments more manageable is through loan consolidation. You’ll be able to combine all your loans into one larger loan from a single lender. This can have some advantages in that it’s much simpler and most consolidated loans have a fixed rate, meaning you won’t be hit hard with changes in interest that can happen with many other variable loans. Additionally, these kinds of loans often offer a range of flexible repayment plans that can help to structure how you’ll pay it off.

3. Talk to your lender. If you’re struggling to make ends meet and simply cannot make loan payments, talk to your lender rather than just not making the payments. You may be able to arrange for deferment or forbearance, rather than only accruing more interest and further complicating the situation for yourself personally and financially.

4. Consider automatic deductions.  For those who have the money, automatic monthly deductions from a checking account can be the way to go in repayment. If it’s gone before you even notice, you’re unlikely to miss it and things will get paid off a whole lot sooner.

5. Know your options. You can’t win a battle without knowing the enemy. Learn all you can about the type of loans you have and your options for repayment. Many government loans offer a grace period after graduation where you won’t be earning any new interest or have structured repayment plans that can help you work out how much and for how long you’ll be paying. This can make a big difference over the long haul so do your research and be prepared.

With the average student loan working out to be around $23,000, repayment is never going to be fun. You can, however, make it a process that won’t hurt your credit, cost you insane amounts of interest or leave you more broke than you were while in college.

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My best advice on this subject is to be sure to match college costs with expected post-graduation salary levels.

Comments

[Olivia @Independent Beginnings]

Nice article! I would add that students should look into the new Income Based Repayment that will go into effect in July. If you qualify, your monthly payments will be limited to 15% of your income that is over 150% of the federal poverty line. Also, your debt is forgiven after 25 years of repayment (or 10 years if you have a public service career). This new program will really be helpful to those with large amounts of debt!

[Brent]

Would you say that we should make repaying my wife's student loans (around $45k) a higher priority than putting more money down on our next car? Our payments on her loan is about $400 a month and we can afford that but it will take awhile to save up the cash to pay off her loan

[Matt]

I just can't bring myself to pay off my student loans quickly. I have no trouble servicing the debt, and it's accruing at just 2.83%. The low rate, coupled with the deduction on income taxes, convinced me to stretch out repayment for 25 years. It would be nice to see the $50,000 debt go away, but I have auto-payment set up and can earn more on CDs than I save by making payments.
Anyone out there to challenge my thinking?

[Angie]

@brent: it depends what the interest rate is on the loan vs. what you would get for a car loan. depending on your credit it might be a wash as to which one to pay off first.

[nooney]

I started off with $56,000 in student loans in September, and I have $21,000 left right now. I will be 100% debt-free in about six months. If you have the discipline to knock out debt in a short amount of time, in addition to living extremely below your means, I say do it. I'm going to apply this same philosophy to funding my savings and retirement accounts when my debt is paid off. I guess I got lucky because savings rates are crap and stocks are volatile right now. I probably am getting better returns by paying off my student loans right now and saving big next year.

[nooney]

One other thing...student loans are the only debt you can't bankrupt yourself out of in the future. Health issues, legal issues, marital issues, etc. can take your savings and leave you with nothing. It's best to get rid of any kind of debt as quickly as possible, but make sure you have an emergency fund in place before you start.

[FMF]

Brent --

If it was me, I'd pay of the higher one first.

Matt --

Financially, that makes sense. Then again, some people like the freedom and extra security of having no debt (me included.)

[Meg]

@Matt: by paying off the loan, you reduce your monthly expenses and can live on a lower income. As FMF mentioned, this can buy you freedom (such as in your job and career choices).

[Travis W.]

I think it depends on the other types of debt you have. I only have mortgage debt (w/a HELOC) and my student loans. I think the home loan in this instance would take priority of the student loans. Mostly because students loans are fixed at 2.55, 4% and 4.5% and offer flexible payment terms as well as deferments for hardships and low income. What other debt gives you that flexibility?

[Bella]

Another few things to think about:
1) Consolidate your loans when the interest rate is low. I was able to lock mine in a few years ago when it dropped to 3.35%.
2) If you are paid bi-weekly, send a half payment every two weeks. Not only will the interest not accumulate as much, but you will make an extra payment per year.
3) Pay a little extra when you can.

Using these three techniques, I paid my loans off two years early.

[FindCollegeCards]

Simple tips that work. When I had student loans, I made sure that I had my money directly taken out of my account, like they stated above. It worked like a charm, and helped my budget tremendously.