Getting Smart With: Paying Off Student Loans
According to experts, nearly 70% of college students leave college with student loans that, in 2016 alone, averaged over $30,000. If not paid off responsibly, these loans have the potential to be with graduates for decades into their future. Fortunately, there are early actions that can be taken to prevent this.
Firstly, it is strongly recommended that new graduates develop a three to five year plan to disencumber themselves from loans as soon as possible. This can be carried out in conjunction with loan services, as many offer a variety of payment plans to best meet their borrowers’ financial needs. In doing so, prioritize paying off loans based off of interest rates associated with each from highest to lowest. Be especially mindful to quickly pay off loans associated with high interests rates that are or exceed 7%. Be sure to establish a monthly or even a weekly budget for income and expenses and follow it accordingly.
During this repayment period, it is important to remember that certain sacrifices might have to be made to achieve freedom from debt. These can span from housing to entertainment to recreation, but the small forfeits made to pay off loans now will lead to much better financial stability in the future. Thriftily cover essential expenditures - rent, utilities, accident funds, and loan minimums - avoid credit at all costs, and maintain employment in an effort to pay down student tuition debt. Some experts recommend that graduates budget as much as 50% of income towards paying off loans. Though a formidable size, the sooner the loans are paid, the sooner graduates can start focusing on larger, long term investments such as property in a financially sound manner. If struggling to stay on track, it might be wise to seek the help of a financial coach or advisor.
Other strategies that are advantageous to paying off student loans include setting up a separate savings account specifically to fund loan payments, where income can be automatically transferred. If in a comfortable financial situation to do so, it is also advised that graduates make larger monthly payments to erase their debt more quickly. Even small additional amounts of income dedicated to student loan payments each month can reduce them significantly, greatly diminishing accumulating interest and decreasing the overall payment span.
If it seems as though your student loan payments cannot be afforded in your current financial situation, it is imperative to contact your loan servicer. Explore options to change payment dates or extend your repayment plan (as short as possible) in an effort to alleviate financial stress. In some instances, such as with Federal Student Loans, loans can be consolidated and deferment or forbearance can be granted. Be cautious in pursuing these avenues however, as interest can still accumulate though the loan payment dates may be postponed. Other methods to delay or eliminate loan payments, such as attending higher education or government loan forgiveness, may be available to you as well.
Though graduating college is a well-deserved time of enthusiasm and maturity, it is important to remember and prioritize financial responsibilities. In following the advice above, you can help your future self by making the elimination of student loans a precedence as you establish yourself and set about on your life’s adventure. Be sure to always work hard and budget accordingly as you put your hard earned education to good use, and remember- you can avoid the burden of student debt for your children by establishing a plan as early as possible.