It’s no secret that student loan debt has gotten wildly out of hand in the past few years; in 2015, there was $1.2 trillion in outstanding student loan debt. But what else are you supposed to do?
Getting a decent job is pretty much impossible without at least a bachelor’s degree and tuition is just flat-out expensive. Even with substantial financial aid, a lot students need federal or private student loans to afford tuition. Jumping on board the alarmingly large student loan ship is an intimidating prospect, but research, budgeting, and organization can help you meet your student loan payments and repay your debts on time.
1. Pay While You’re in School
The sooner you start repaying, the better. If you can, begin making payments while you’re still in school. Even if you can only afford student loan interest payments, every little bit counts. If you begin paying your interest, it means you’ll have less to repay later. While most lenders don’t require you to pay while you’re still in school and offer a six month grace period after you graduate, it’s a good idea to pay as much as you can, as soon as you can to prevent interest from accumulating. Consider taking on a part-time job to help you cover these expenses.
2. Select a Repayment Plan That Works for You
Once you’ve graduated and your grace period has ended, you’ll need to start repaying your loan. Select a repayment plan that works for your budget. With student loan interest rates at their current levels, it’s best to repay your loan as quickly as possible. If you have federal student loans, there are several repayment plans that you can select.
Over a course of 10 years, this plan allows students to make scheduled, substantial payments every month. If you feel confident that you’ll be able to make regular repayments of least $50, then choose this plan. It will help you accumulate the least amount of interest.
If your student loans total more than $30,000, then you qualify for the Extended Repayment plan. It prolongs your loan term to 25 years, which also reduces your monthly payments. The downside of this plan is that the longer you take to repay your loans, the more interest will accumulate.
When you choose the Income Based Repayment plan, your monthly payments are based on your discretionary income, not the amount that you owe. Discretionary income is calculated by subtracting your adjusted gross income from 150% of the poverty line for your family size. Like the Extended Repayment plan though, the interest that accumulates throughout this plan’s longer loan term can eventually wind up costing you more than the original loan. But the good news is that after 25 years of repaying on this loan, your remaining debt may be forgiven. We call these the Secret Student Loan Forgiveness Programs.
If you’re considering private student loans, be sure to check with various lenders about their repayment plans before committing to a loan.
3. Pay Extra When You Can
Regardless of the payment plan that you choose, you should always pay extra when you can. The more you pay, the less interest your loan will accumulate. Prolonging your ramen diet, scrimping on utilities, and cutting back on spending can all help free up money to repay your loan.
4. Consider Student Loan Forgiveness
After you’ve graduated, taking a position in public service can eventually help forgive some of your federal student loan debt. If you serve 10 years in a public organization — police, fire, government, military, public education, public health, social work, public interest law, or public library — and meet certain income specifications, your loan may forgiven. Be sure to talk with your lender about this option.
Also, almost every state in the United States offer student loan forgiveness programs as well. Make sure you check out this list of State-based Student Loan Forgiveness Programs.
5. Let Your Lender Know If You’re Having Trouble
If you realize that you may have trouble making your monthly payment, contact your lender right away. They may be able to work with you to adjust your repayment play while you’re going through financial hardship. More students than ever are shouldering a heavy debt burden, but you need think of them as an investment in your education and your future.
While making monthly payments for years to come may not be ideal, don’t let yourself get discouraged. Be frank with yourself about your finances, though. Careful organization and a realistic view of your month-to-month budget can help you make your payments on time and repay your loan without any excess hassle.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.