Tackling Student Loans

by Tim on January 16, 2014

$23,186.

This is the average debt load a student will end up with after graduating college.  If you’re like the 66% of all undergraduate students who have taken a student loan, you probably want to get rid of those things as fast as possible.  It’s easy to get caught up in the borrowing maze in college and managing your loans can become a headache quite fast.  With lenders selling your loan to other places and changing their name – it’s hard to keep everything straight!

Here are a few things to help you manage your student loans better– and help ease the pain of repayment.

Get Organized

If you’re currently a student, do yourself a favor and keep a running total of all your student loans in one location.  On this summary, you’ll want to keep track of each loan provider, account number, original amount, username, and password.  (You can use the Financial Snapshot to help keep your student loans organized)

If you’ve already graduated and start to see the lender letters pile up…work fast to build this list and move to the

Build a Loan Payment Account

When you graduate from school, you are given a six-month grace period before you have to start repaying your loans.  I recommend that you prepare by opening a savings account or second checking account that is devoted to your loan payments.  Once this account is set up, you can automate the payments directly from this account.

Before payments start, it would be ideal to have saved at least 2-3 months payments in the account as a buffer.  Having $500 – $1,000 extra to fall back on will take away some of the payment anxiety.


Rework Your Personal Budget

If you are still in school or nearing graduation, you probably have a better idea of what your payments will look like.  If not, then jump on the lenders’ websites and log into your account.  You should be able to calculate the estimated payments – if not, then use this calculator.

Once you calculate the payment information, take a look at your budget and work the payments into your plan.  If the payments are high and they are keeping you from eating, consider extending the terms or looking into income based repayment.

Caution:  Extending the term of your loan or paying interest only should be considered only in the most critical of situations.  Prolonging a loan means you pay more! It’s that simple.

Snowball The Loans

Now that you’ve organized your loans and set up your account to make the payments automatically, you might consider the snowball approach.  If you have a handful of small loans with a lender, you might be able to make additional payments to completely eliminate one of the loans.  By paying the smallest loan off entirely, you’ve eliminated a small payment and can focus the extra cash flow towards the next smallest loan.  It’s great to see those student loans melt away, and this is a great approach to maximize your student loan repayment.

What tips do you have for those starting to pay off student loans?

{ 12 comments… read them below or add one }

Nick Altrup October 16, 2010

Student Loans are a pain. Like you said, they get bought and sold and it can be difficult to keep track of who owns the loan. Having said that, many graduates are locking in interest rates under 3%. This brings up an interesting question:

Why focus on paying back your student loans at such a low rate of interest?

I see it from both perspectives. From one perspective, it makes sense to get out of student loan debt anyway for two reasons. One, we are biblically commanded to do so. Two, for the snowball effect.

From the other, if we are able to achieve a far greater return on that money from other sources, why focus on paying more than the minimum?

Lastly, if we are headed for inflation (likely), it makes even less sense to pay more than the minimum, because the value of your debt decreases.

Your thoughts?

Reply

Tim October 16, 2010

#
Tim says:
October 16, 2010 at 10:01 am (Edit)

Thanks for commenting Nick!

I know a few people who have student loans locked in at a great rate (below 4%) but for recent students (in the last 3 years) they’re lucky to find rates below 6%. In fact, since 2006, federal loan rates haven’t seen the nicer side of 6.8% as seen here: http://www.finaid.org/loans/scripts/interest.cgi

I agree with you that if a person was fortunate enough to lock in a loan at 3% or lower pre-2006 and have the means to earn more than that with your money – a disciplined person should look at these alternative investments.

In general, I would not rely on inflation to make the burden of a student loan feel less cumbersome. If inflation does happen as you suggest, it would need to be at a significant rate in order to make the student loans ‘feel’ devalued. IF this is the case, I think there’s more to worry about than the ‘good’ news that your student loan value has been deflated relative to the dollar.

Thanks for your comment!

Reply

Bryan October 16, 2010

I would also suggest that you consolidate your loans into one. This will lower your payments and sometimes the interest rates. It also make it easier to stay organized because every thing is in one place.

Reply

Tim October 16, 2010

Hi Bryan,

Great suggestion! My wife and I found this option to be a solution that helped us.

We became more organized, lowered our interest rate, and then lowered the rate even more by setting up automatic payments.

Thanks for commenting!
Tim

Reply

Nick Altrup October 16, 2010

Thanks for the reply, Tim. I had no idea many were in 6% range. Ouch! That is unfortunate. My wife and I were extremely fortunate to get our loans locked in at 2.7%. I had no idea how lucky we were. Get up the great work here. I love your site.

Reply

Tim October 16, 2010

2.7% IS a great rate! Thanks for the compliment Nick!

Reply

Help With Debt June 13, 2011

Nice to be visiting your blog again, it has been months for me. Well this article that I’ve been waited for so long. I need this article to complete my assignment in the college, and it has same topic with your article. Thanks, great share.

Reply

Mandy September 18, 2012

These are some valuable advices. Too bad the majority of students start looking for advices only when they already experiencing debt problems. These precautions should be taken the very moment they are applying for student loans.
Thank you for sharing your thoughts with us.

Reply

Best interest rates for home loans October 20, 2012

The post is giving information about tackling student loans. Useful post

Reply

pay day loans February 7, 2013

There are five basic ways a graduate can qualify for federal student loan forgiveness: volunteering with qualifying programs, performing military service, teaching in specified communities, practicing medicine within certain areas, and by meeting various other miscellaneous criteria that appear within the forgiveness program.

Reply

Sher@knsfinancial.com January 20, 2014

Hey Tim :-), great article! We also have pretty low interest rates on our student loans, so our other debt is being tackled first. Loan consolidation is the first thought that came to mind as a helpful step, but I see it has already been mentioned :-). Best to you….

Reply

Chris Long April 10, 2014

Though most students live on a tight budget, there are ways of making your money go further. Student loans for college students with great features and benefits are widely available on the Internet. Covering tuition and other eligible education expenses is possible with http://northandloans.ca/. This service is available to students who need additional financial support towards the cost of accommodation, food, clothes and travel. Gaining financial assistance is easy and right at the click of your mouse.

Reply

Leave a Comment

Notify me of followup comments via e-mail. You can also subscribe without commenting.

{ 3 trackbacks }

Previous post:

Next post: