Managing Student Loans

Students graduate with increased debt loads each year as the cost of attending college soars above inflation. The level of student loan debt in the U.S. now exceeds that of credit card debt, with an inevitable rise in defaults. Repayment terms can be generous, but one should consider if being burdened with student loan debt into middle age is really such a good idea. Shedding the loans quickly and aggressively will allow for more financial freedom as other priorities such as a home and family come to the fore.

The main advantage of paying off student loans early is the overall debt repayments will be drastically reduced as less interest will be charged. As student loans are none dischargeable it can be a relief when they are paid off, in case personal circumstances change in the future. Here are five tips which can help loans to be repaid early.

1.Loan forgiveness programs.

Loan forgiveness programs have increased and improved in recent years. Those with federal student loans can apply for pubic service employment in a variety of fields including teaching, law, nursing, medicine, and social work. In return for working in the public sector the federal government will repay a portion or all of outstanding student loans. Valuable work experience can be gained at the same time as loans are cleared down. One can also consider working in a voluntary capacity which can garner a lump sum towards payment of student loans, whilst paying a stipend for living costs.

2. Loan consolidation.

Consolidating federal student loans or private student loans does not necessarily mean increasing the term of the loans, but it can reduce the overall amount repaid if current interest rates are lower than the ones which were signed up for originally. Federal consolidation will bring a fixed interest rate. Take advantage of rate reductions that are offered by opting for automated monthly payments.

3. Establish a good credit score.

Those with private student loans have a great opportunity to have the APR reduced if they concentrate on establishing a solid credit record whilst in college. This can be achieved by using a credit card sparingly, making small monthly purchases and paying the balance off in full at the end of each statement period. Whilst credit cards can spell disaster for students if used to fund lifestyles, they can be a bonus for those who have the foresight to build up good credit.

4. Concentrate on paying down loans aggressively.

Prioritise the loan with the highest interest rate first. If a student has a mix of federal and private loans then the latter will inevitably carry higher rates and possibly fees. Pay the minimum on the loans with the lowest rates and concentrate on overpaying the loan with the highest rate, putting additional funds into reducing the principal. Students who consider their loans before graduation should try to reduce some of the principal whilst still attending college, or at least pay the interest which can otherwise be deferred.

5. Continue to live like a student.

There will likely be no other time when ones outgoings can be as low as when one is a recent graduate. By opting to continue to live in the same frugal manner as a student, a huge amount of salaried income can be saved and used to pay down the principal on student loans. Instead of spending on frivolous purchases follow a tight budget. Better to live as a student in ones first career move than live like a student two decades later through lack of funds caused by outstanding student loans.

Student loans never go away and can be carried for years. There is no better time to tackle paying them down aggressively than on graduation. The satisfaction of being debt free will also give a valuable lesson in handling personal finance that will have a lifelong benefit.