4 MIN READ
Life is hard for millennial college graduates. The burden of repaying student loan debt (combined with low wages and underemployment) is causing them to delay marriage, home ownership, having children, and saving for retirement until they’re well into their late 30s and early 40s — and even that’s a pipe dream for some.
Unfortunately, there’s not much that can be done for those who’ve already accrued a massive debt, but there are some ways to manage these loans and keep them from taking over.
1. Take Advantage of the Grace Period
Depending your loan type, you may have a grace period of anywhere from six months to a year after you graduate where you aren’t required to make any payments. It’s easy to turn a blind eye to your debt during this period, but it’s far better in the long run to start making payments right away. If your payment is going to be $350 per month after the grace period, pay that amount now. Not only will you get the jump on your loan, you’ll also get in the habit of putting aside that amount of money each month.
2. Make it Automatic
Some lenders (such as Sallie Mae) offer a discounted interest rate if you sign up for payments to be automatically withdrawn from your checking account each month. Though this discount is usually small (around .25 percent) it really adds up over time. Auto-pay has the added benefit of eliminating the possibility of missed payments and late fees.
3. Pay Extra Principal
If you can afford to, tack on extra money to each monthly payment you make. Even if it’s only $10, it’s applied directly to your principal amount instead of going to interest. And, since interest is calculated based on the principal each month, the lower your principal amount, the less interest you will pay over the term of the loan. It’s a win-win scenario!
4. Cause an Avalanche
When it comes to settling debts, the best strategy is to pay off the loans with the highest interest rates first. So, if you have multiple student loans, your largest payment should go to the one with the highest interest rate each month. This will pay it down in a shorter amount of time. Once you have it paid off, move on to the loan with next highest interest rate. Continue this cycle until all your loans have been satisfied.
This technique is known as a debt avalanche. Though it’s been used as a way to pay off large amounts of credit card debt for years, it’s also recently proven to be of help for those who have multiple student loans.
5. Look to Your Employer
If you’re one of the lucky ones, you may be able to find a job that will help you pay off student loans. With so many industries in need of skilled employees, some companies have become increasingly competitive with their benefits offerings. Student loan repayment is popping up more often than ever in compensation packages. Some companies, such as Starbucks, will even pay your college tuition!
6. Raise Your Payments with Your Wages
The first few years of student loan repayment are often the hardest. Low wages make keep you from being able to pay more than the minimum due, but that’s ok — don’t let it get you down. As your wages go up (through raises and promotions) use those increases to bump up your payment a small amount. If you continue to do this, you’ll shave months (or even years) off of your loan.
If you have multiple loans from various lenders, and are paying several different interest rates, you may want to consider professional loan consolidation. The biggest benefit of loan consolidation is that it usually decreases the amount of your monthly payments, thus alleviating some of the burden.
However, consolidation also comes with drawbacks. It frequently lengthens the term of your loan, which means more interest payments. Furthermore, the interest rate on a consolidated loan may end up being higher than some of your current loans. Finally, consolidation means forfeiting many of the deferment options and repayment plans that come with federal loans. It’s important to compare loan terms and do your math before consolidating your student loans.
If you’re looking to lower the monthly payment amount of your student loans, refinancing through a different lender is an option. New loans generally come with lower interest rates and a choice in how long you’d like to take to repay your loans. Both can reduce your monthly payment considerably. If your loans have a variable interest rate, you’ll want to consider refinancing your student loans as soon as possible to avoid rate hikes. In order to qualify for student loan refinancing, you’ll need a stable job, positive repayment history, and good credit.
9. And If You Can’t Afford Your Loans...
Hard times befall the best of us, and there may come a point when you simply cannot afford to make you loan payment. If this happens, do not stop paying your student loans. Defaulting on federal student loans brings about extreme consequences. The government has many options at their disposal, and will not hesitate to garnish your wages, withhold your tax refund, and deny future benefits like Social Security.
If you find yourself unable to make loan payments at all, you can apply for forbearance and deferment. Both of these options will suspend your loan payments without damaging your credit score. Though your loan payments will be deferred, interest will continue to accrue on your loans. This may not be ideal, but it will give you time to find work or recover from illness or temporary disability.
There’s no doubt about it, student loans are a serious burden on the American people. The economic ramifications of this colossal debt are only just starting to be seen, but they’re far from over. The best we can do for now is carefully manage our debt—in what can feel like an out-of-control situation, always remember you do have control over how you tackle your debt. Good luck out there, friends!
About the Author
Liz Greene is a makeup loving, dog hugging, anxiety-ridden realist from the gorgeous City of Trees, Boise, Idaho. You can follow her on Twitter @LizVGreene or catch her latest misadventures on her blog, Instant Lo.