Congratulations! You’ve graduated from college. As you step off the stage, diploma in hand, a new world filled with adventure awaits you.
First, the good news: even if you graduate with debt (and more than 70% of the Class of 2014 will1), your projected lifetime earnings will most likely outweigh your student loan debt. Recently, a New York Times article cited a paper by David Autor, an MIT economist, who found that the actual cost of a college degree is about negative $500,000.2 Yes, in the long run, college is likely to pay off.
And now for the bad news: The Class of 2014’s average student loan debt will be roughly $33,000.3 This can be overwhelming for most graduates; however, with careful planning, this can be managed.
Here are six tips on how to manage student debt:
1. Get organized
Some students may graduate with up to 12 loans. Keeping track of the paperwork related to these loans can be time-consuming. One of the first things you should do is to make a list of all of your loans. Include the contact information for the lender, the loan ID number, your current loan balance, interest rate, and most importantly of all, the date the first payment is due.
In the heady days following graduation, students often forget when the six-month grace period ends and the start of loan repayment begins. Don’t let this happen to you!
If you have lost track of your loans, visit the National Student Loan Data System for Students website and get a list of all your federal loans. Managing your loans is the first step to getting organized. Additionally, FinAid’s Student Loan Checklist can help you organize your loan information.
If you have several loans, paying off the most expensive one first may be most beneficial. This means paying off the loan that carries the highest interest rate first (most likely a private student loan, or a federal student loan taken before 2008). This should help you minimize the total interest you will pay, saving you money in the long run.
While the process of paying off your student loans can be overwhelming, setting priorities can make it seem more manageable.
3. Talk to Your Lender
What should you do if six months have passed since you’ve graduated, your first payment is due, and you don’t have a job? You should talk to your lender immediately. Most lenders will help you reach a resolution so you can avoid defaulting on your loan.
Defaulting on your loan, which will happen if you do not make payments for nine months, can hurt your credit score and result in the amount of money you owe to increase dramatically.
The important thing to remember: talk to your lender before it is too late.
4. Take Advantage of the Tax Break
Did you know it’s possible to deduct up to $2,500 per year in interest paid on federal and private student loans on federal income tax returns? Best of all, this deduction is taken as an adjustment to income, which means you don’t even have to itemize your deductions.
As always, consult your tax professional or financial advisor for advice specific to your situation.
5. Loan Forgiveness
Programs that will forgive some or all of your federal student loans exist! One of these, the Public Service Loan Forgiveness program, is a federal program that forgives student debt remaining after 10 years of making qualifying payments for people in government, nonprofit, and other public service jobs.
You can find out more about other federal loan forgiveness options at IBRinfo.org.
6. Get a Financial Advisor
If your college debt is unmanageable or you are unable to make your payments on time, work with a financial advisor who specializes in managing student loan debt to get advice specific to your situation.
With federal student loan laws changing often and a variety of repayment options to choose from, getting good financial advice can have long-term benefits.
A financial advisor may help you find the best loan repayment strategy and should be an important part of your comprehensive financial plan.