Tips for Paying Back Your Student Loans
The average college student is facing some difficult facts: - More young people are going to college, which means more young people are taking out student loans. In 2009, more than 70% of graduating high school students enrolled in college, the highest percentage on record.
- A CollegeBoard report stated that the number of student loans issued in the 2009-2010 school year increased 10% from the previous year. Of the estimated $154.46 billion in student financial aid, 43% came in the form of federal student loans.
- The latest Credit Karma data shows that the average consumer has $29,151 in student loans.
- The Class of 2011 will be graduating into an economy with a 9.2% unemployment rate.
Is your head spinning from all the numbers yet? It’s very possible that this generation’s graduates will be in more student loan debt than Americans have ever had to face.
To college grads out there, what’s your strategy for paying back the government? If you don’t have one, here are some tips on chipping away at your student loan debt.
Don’t postpone your loan repayment.
Although there are a several reasons why you might need to defer your loan payments after graduation, such as unemployment, disability, school enrollment, and economic hardship, if you’re able , start paying back those loans before you graduate.
It may seem daunting to start reducing a student loan upwards of $30,000, but it’s worth it to begin paying back what you can.If you are currently earning a paycheck while going to school, start putting aside a chunk of your earnings to chip away at your loans.
Determine how much you can pay toward your student loan balance. Even if it’s just $25 per month, you’ll be better off doing so.
Prioritize your loan payment.
Did you know that paying off your student loans on-time builds your credit history? It’s not wise to take out a student loan specifically for the purpose of building credit, but if you’re already stuck with one, use it as an advantage to better your credit health.
Your student loan is an installment loan, which means that you pay a specific amount each month, versus revolving credit like credit cards. Installment loans are an important variable in your credit report to show lenders that you have a good mix of credit. As long as you pay on time every month, the due diligence of paying your loan will help your credit.
Pay more than the minimum.
This is great advice for any loan repayment you make each month, not just your student loan. If you find that after budgeting your savings account and emergency fund, you have some extra cash to save, don’t just blow it on anything. Use it to reduce your student loan faster and reduce the amount of total interest you’ll pay in the end.
Get a better deal.
If you’re struggling to pay your student loan each month, reevaluate your financial situation. You may be able to renegotiate the terms of your repayment. Here’s three repayment plans that could work for you:
- Graduated repayment: With this repayment plan, your payments start out lower and increase every few years.
- Extended repayment: If you can’t handle your monthly loan payment, you may be able to negotiate to extend the life of your loan repayment in order to reduce your monthly payment.
- Income-based repayment: If you didn’t get the paycheck you needed to repay your loans, you may be able to negotiate income-based repayments. In order to qualify, your payments must be less than 10% of your income.
You should only go with one of these adjusted repayment plans if you need to. Don’t extend your repayment plan simply because you want to have more available cash from month-to-month; extending your repayment plan for a longer term means you’ll pay more in interest in the long run.
Bottomline: You may find yourself paying back your student loans for years to come. To keep from burning out don’t forget to celebrate whenever you hit a landmark in your payments, like paying off your first $1,000 or even $10,000. Marking these accomplishments will keep you motivated to continue responsibly paying back your student loans and maintaining healthy credit.
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