If you’re carrying student loan debt, you’re not alone. Among the college students graduating in the class of 2019, 69% took out student loans with an average debt of $29,000. While this figure can be daunting, a well-thought-out game plan can make paying off student loans more manageable.
Explore your options
The standard repayment schedule for federal student loans is 10 years. But that may not necessarily work for you if your starting salary is low or you’re having a hard time finding a job.
Be sure you evaluate your student loan repayment options. Federal student loans have a number of important features and protections to help make payments more manageable, such as income-based options allowing you to make payments that are a percentage of your income. You can also apply for deferment or forbearance, which lets eligible borrowers temporarily suspend payments. During forbearance, you will still be responsible for the interest that accrues. If you qualify for deferment, you may not need to pay interest.
Most lenders provide a six-month grace period after students graduate. It may be tempting to wait to start paying on your loan, but if you have a job consider starting right away. Not only will you start whittling away at the principal before interest kicks in, you’ll get used to living on your after-loan-payment income.
Strategize and prioritize
When faced with large and long-term debt such as a student loan, it can be tempting to ignore the difficult numbers and seemingly unconquerable timeline. But you’ll be far better off in the long run if you carve out some time early on to develop strategies to pay off student loans.
Start with a list of all your student loans — and any other debt, such as credit card bills — and get a firm grasp on how much you owe on each loan and what the interest rates are.
Bottom line: Dedicate extra cash to paying down loans with the highest interest rates or use the debt-snowball strategy, which advocates knocking off the smallest loans first as quickly as possible.
Analyze your budget
Between rent, utilities, groceries and the occasional night out with friends, it can be hard to see where student loans fit into the picture. A budget can help you get a handle on it. To simplify the task, try the 50/30/20 budget rule method: No more than 50% of your income should go toward fixed expenses like rent, food and utilities; dedicate 20% of your income for savings and debt repayment; and spend 30% or less on discretionary expenses (i.e. “fun money”).
Tip: Look at your life for areas of overspending and consider using apps to analyze habits and bills for potential savings.
Don’t go it alone
Check to see if your employer has a student loan assistance plan to help with payments. While very few employers currently offer student loan repayment assistance as a benefits perk, more plan to, and it never hurts to check!
To refinance or not?
You might be able to save on interest by refinancing your student loans. But before you do, make certain you won’t need to take advantage of the features and protections offered by federal loans such as deferment, forbearance, repayment plan options and public service loan forgiveness. Once you refinance to private loans, in most cases, all of that protection and flexibility goes away.
Bottom line: Evaluate your options before you change things up and find the best way to pay off student loans.