This article was originally written for FirstGenerationStudent.com, now a part of ImFirst.org.
As college tuitions are rising, student loan debt is climbing right along with it.
According to the Institute For College Access and Success, in 2011, the average U.S. college student graduated with $26,600 in student loan debt.
If you attend a private college or university, expect that figure to increase significantly.
So how can you tackle student loan debt so you’re not paying off student loan debt well into your 30s—and even 40s? Here are a few solid strategies—if you follow them, your college loan debt should be easier to swallow.
Know What You Owe
This one may seem absurdly simple, but the first step into loan delinquency, and a poor credit score—which will make it difficult, and more expensive, to buy a home, car or to get a credit card—is not knowing what you owe on your student loan. The keys are to know who your lender is, the type of loan, the amount owed, the interest rate, the grace period, and the estimated monthly payment. You can find all of your federal student loan information on the National Student Loan Data System. These websites can help you organize your student loan information:
What Are Your Repayment Options?
There is no one, single way to pay off your college debt. Most student loans these days come from the federal government, and like most government programs, it’s not easy to clarify repayment options. But there are many options available—many of which take your income into consideration. And if you work full-time in a “public service” job (as a teacher, a government employee, for a non-profit organization) you may qualify for the Public Service Loan Forgiveness program.
This is like most loans, in that standard repayments let you pay a fixed amount each month. Fortunately, the trend recently is to tie that figure with your monthly income, assuring you won’t go broke or hungry with a monthly loan payment that you can’t afford.“When you consolidate your loans, you’re only making one loan payment to one loan provider.”
This strategy allows you to “start small,” and pay a monthly loan bill with a smaller monthly amount right out of college. As you grow in your career, and presumably earn more money, the monthly loan amount rises (or “graduates”), thus allowing you to pay more toward your loan debt (and get it out of the way more quickly).
This option lets you repay your loans at a fixed or graduated rate over 25 years (instead of 10 year terms for the standard and graduated plans). But you must have more than $30,000 in either Direct Loans or Federal Family Education Loan (FFEL).
Repayment Options Tied to Income
Income-Based Repayment (IBR), Pay As You Earn, Income-Contingent and Income-Sensitive are four repayment plans that look at your current household income or discretionary income (among other factors, like family size) to establish monthly payments. Your payments change as your income changes and, for all but the Income-Sensitive plan, after either 20 or 25 years of monthly payments the remaining balance of your loan is forgiven—meaning, you don’t have to pay more.
The Federal Student Aid website has a helpful summary of the options as well.
Should You Consolidate Your Loans?
If you have multiple student loans and want to reduce the hassle and paper work that comes along with those loan debts, try consolidating your student loan debts. By consolidating, you’re only making one loan payment to one loan provider, thus reducing any chance of mistakes or oversight (and less fees for missed or late payments).
Deferment and Forbearance for Tough Times
With a consolidated loan, you also open the door for loan deferment, a way to “put off” your loan obligation if you’ve been laid off or suffer a health issue that affects your income. With a deferment, your loan servicer will temporarily suspend your loan payments (12 months is a normal timetable), with both principal and interest payments fully suspended. With a forbearance, you get the loan suspended, but the loan provider is allowed to “keep the meter running” on interest accrual. Look into the various income-related repayment plans (like IBR and Pay As You Earn) before you consider deferment or forbearance. For more information on deferment and forbearance check out http://studentaid.ed.gov/repay-loans/deferment-forbearance.
Basically, you’ll want to sit down, create a budget, and keep making those payments no matter what. The sooner you do that, the sooner your loan is gone, and the sooner you can move on to larger things in life.