Nothing can be as exciting as graduating from school and landing your dream job. However, if you are like the majority of young people, this newly found joy comes at a heavy price. Going through college is an expensive affair, and the majority of students are forced to borrow money. A report that appeared on CNN indicated that over 40 million Americans have a student-related loan.
The positive news is that there are numerous methods you can use to reduce the burden and manage your debt in a smarter way. All you need to do is to plan carefully and have a bit of discipline, and you will find it easy to handle your student loan. Here are eight tips on how to do that.
1. Consolidate/refinance your loans
If you have several other direct payday loans on top of your student loan, you should consider consolidating them. This includes taking out one big loan to pay off several small ones. One of the benefits of loan consolidation is that it makes for only one monthly payment. Consolidation increases the period of repayment. However, this can be a two-edged blade as you will be paying more interest due to the longer repayment period, but it will easier for you to manage your monthly payment.
Loan consolidation can be categorized into two: secured and unsecured. With secured loans, you need to give collateral such as wages, car, or house. Unsecured loans don’t require collateral but are usually harder to qualify for.
Refinancing allows you to take a loan from a lender to pay off a different one. When refinancing, make sure to choose a second loan with a lower interest than the first one.
2. Explore other plans
For federal student loans, you can get in touch with your loan service provider to work out an alternative payment plan such as:
- Graduated repayment. In a graduated plan, you increase the amount you pay out every month after every two years over a period of ten years. With this option, you make low payments early on, in an entry-level salary. As you move up the career ladder, you can expect salary increases and, therefore, you’ll be able to afford to pay a higher amount.
- Extended repayment. This enables you to pay your loan over a longer time period, like 25 years instead of 10 years. This will result in a lower monthly installment.
- Pay as you earn. If you have proof of your financial difficulties, you can have your monthly installment capped at 10% of your income for a period of 20 years. Any balance on the debt will be written off. The methodology used to quality candidates is difficult, though.
- Income contingent repayment. The payment is calculated depending on adjusted gross income. It shouldn’t be more than 20% of your income for a period of 25 years. After the 25 years, your student loan balance will be written off.
With any of the above plans, you can lower your monthly installment, but remember that they mean that you will be paying interest for a longer period.
3. Make use of the grace period
Most of the student loans have a grace period when you aren’t supposed to make any payment. A common error that students do is to ignore their loans during the grace period instead of using this time to make comprehensive plans and start paying out their loan. You can use the grace period to save for the first three installments. By the time the first payment is due, you will already be three months ahead.
4. Budget seriously
During your university days, you budgeted your money well, eating noodles most of the nights and using your bed as a couch. Now that you have a job, it is time to buy those nice things and enjoy. While this may be true, if you have a student loan, it may still not be time to enjoy. If you can live a frugal life for the first few months of your career, you’ll manage to pay off your student loan faster.
There are several tips you can use to have your money. These are:
- Find a roommate to live with
- Cook at home instead of eating out
- Avoid buying the latest fashionable items
- Use a bike, public transportation, or share a ride with a friend or colleague
- If you have semi-valuable possessions, consider selling them
While these tips may not be easy, remember that every $50 spent eating out or on a fashion item can go towards reducing your student loan. After all, you will enjoy these things one you have cleared your student loan.
5. Research student loan forgiveness programs
If you would like to have your student loan forgiven, you need to research various student loan forgiveness programs out there. There are four major types of student loan forgiveness programs. These are:
- Teacher Loan Forgiveness. These are for instructors teaching full-time in a district considered to be a low-income one for a period of five years.
- Closed School Discharge. This is for current or recent students of a school’s that has closed.
- Public Service Loan Forgiveness. This is for a government or nonprofit employee who is repaying the Federal student loan. It depends on the employee’s income.
- Total and Permanent Disability Discharge. This is for people with permanent or total disability.
It is worth noting that the loans won’t be forgiven automatically. Instead, you need to make at least 120 installments (ten years) before the balance can be removed. In order to apply for any of the listed programs, you should get in touch with your lender to determine if you qualify. Your loan provider will look at your current situation to determine if you qualify.
6. Don’t defer payment
There are certain situations when you may require postponing your repayment. This is a good option only when you are in a tight situation such as illness. However, this is not a habit you should get into and it isn’t a long-term solution. Remember that the interest will continue to grow when you are not making payments, and it will be harder for you to recover from the financial difficulty of missing payments.
7. Make extra payments when possible
When you get an opportunity to pay out an extra amount, go ahead and do it. According to student loan tips from the United States Department of Education, you need to inform your lender to put the additional payment to the loan with the highest interest. This way, you reduce the burden.
8. Choose federal loans first
If you are torn between a federal loan and a private one, choose the federal loan first. For each of your schooling years, always take time to fill the student loan application form. The Office of Federal Aid will help you to find out the existing opportunities for federal loans, grants, and work-study funds that can help you pay for your tuition fees.
Federal loans have fixed rate of interest, unlike various private loans. They also have a deferment period, when you don’t have to make a payment if you are still in school or unemployed.
Final thoughts
Student loans are a burden for the majority of students. With these eight tips, it will be easy for you to manage yours.
