For better or worse, student loans have become a fact of life for most college graduates. Approximately 70 percent of grads have some level of student loan debt according to our debt statistics, with the average debt approaching $40,000. Even more worrisome is the number of borrowers who cannot repay their loans: 11.6 percent of student loans are currently delinquent.
While these numbers may sound grim, the truth is that paying off your student loans is very doable — as long as you remain dedicated to the goal and work hard towards achieving it. We’ve compiled a list of some of the best habits to get into to be a successful student loan borrower.
Start As Soon As Possible
After you graduate from college, professional school or graduate school, your first loan payment will not be due for a certain period of time. This grace period gives you time to land your first job and get yourself established.
What many grads may not realize, however, is that interest usually accrues on unsubsidized federal student loans and most private loans offered by banks and financial institutions during this grace period — and during every other time that your loans are in deferment or forbearance. A smart borrower will minimize or entirely avoid any of these times, to avoid the accumulation of costly interest.
There are times when it may be absolutely necessary to defer your loans or go into forbearance. For example, if you have been laid off from your job or suffered a serious illness or injury, you may simply be unable to make payments on your student loans for a period of time. If you need to utilize a grace period, do your best to keep it to a minimum so that interest does not continue to grow. By minimizing the amount of time your loans are in forbearance or deferral, you can reduce the total cost of your loan and shorten the repayment period. In fact, borrowers who use six months or less of forbearance or deferment are almost two times as likely to successfully repay their student loans.
Graduates who do not put off their student loan payments — unless absolutely necessary — tend to be in a much better financial position than graduates who delay paying their student loans. When you know how much your monthly payment will be, work that amount into your monthly budget. You may need to cut other expenses to afford your student loan payments, or to take steps like getting a roommate or using public transportation instead of buying a car. While this may seem painful in the short-term, a strategy of paying off debt will pay off in the long-term, as you will pay off your student loans more quickly and be able to put your money to use in other ways once they are paid.
Don’t Be An Ostrich
Depending on how much money you have borrowed, it can be a bit scary or overwhelming to look at your student loan balances. It can also be frustrating to see how your payments have not made much of a dent in the overall debt, due to interest. But knowing how much you owe can help you stay on track of your loan payments — and ultimately be more successful in paying back your student loans.
Most lenders have options for viewing your student loan balances online. Regularly log into your account to check your balance, and take some time to look around the company’s website. You may find that you’re eligible for different payment plans that could help you repay your loans more quickly, or lower your monthly payments a bit if you are struggling to make ends meet. When it comes time to pay taxes, your online account access can be helpful for student loan interest deduction information. Make sure to keep your contact information current so that your lender always has a method of getting in touch with you if necessary.
When you monitor your student loan balances, you will be reminded of the importance of paying off these loans — and to make room in your budget each month for that payment (or perhaps even a bit more). Seeing the balance slowly decrease over time can be a great motivator, as you get closer and closer to paying off your loans and gaining some more financial freedom.
Complete Your Degree
When you borrow money to pursue a college education, you are making an investment in your future. The best way to reap the returns on that investment — and to be able to pay back the money you borrowed — is to graduate. Once you have a degree, you will be able to work in your chosen field, and will be better able to pay back your student loans.
If you have not finished your degree, you can still work towards paying back your loans and responsibly managing your finances. There are situations in which a person is simply unable to complete their college or graduate degree. Paying back a loan may be a bit more challenging, but it is still doable, provided that you are disciplined in budgeting your money and making monthly payments.
If you have not yet started school, make a plan to both minimize the amount of student loans that you take out and to ensure that your graduate. Take on debt that is manageable, and make smart choices during school so that you can get your degree — and then repay your loans more easily than if you had not been able to complete your education.
Stay the Course
When it comes to paying off your student loans, consistency is the key. Stick to your repayment plan. The more payments you are able to make, the more likely you are to succeed in paying your loans off — and becoming debt-free.
Many lenders offer lower interest rates for borrowers who make a certain number of on-time payments. Lowering your interest rate — even if just by a small amount, such as a fraction of a percentage point — can reduce the total amount that you have to repay. If you miss payments, you can hurt your credit — and end up paying more over time. A bad credit score can also lead to higher interest rates on future loans, like a mortgage. Paying your student loans consistently and regularly is critical to your overall financial health — and achieving your goal of being debt-free.
Author: Jeff Gitlen
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