It is great to immerse yourself in the college experience of dorm life, making new friends and learning new subjects. Unfortunately, with college often comes debt.
According to studentloanhero.com, "Americans owe over $1.4 trillion in student loan debt, spread out among about 44 million borrowers. That’s about $620 billion more than the total U.S. credit card debt. In fact, the average Class of 2016 graduate has $37,172 in student loan debt, up six percent from last year."
What are some pitfalls to managing those student loans?
1. Not Knowing What You Owe or How You'll Pay It Back
There are several repayment plans available, providing the flexibility you need. If you don’t choose a repayment plan, you will be given the standard repayment plan, which means you will pay off your loans in 10 years. This may not be feasible, especially since it may take time to secure lucrative employment in your field.
You can switch to a different plan at any time to suit your needs and goals. For example, if your finances change due to a new job or losing a job there is flexibility. Visit the Federal Student Aid website and look at the repayment calculator estimate. This tool can help you determine the most appropriate repayment plan for your situation.
If you have multiple federal student loans, you can consolidate them into a single direct consolidation loan. This lessens the stress if you have separate loan payments for different loan holders. If you consolidate your loans, you will only have one monthly payment. (For related reading, see: Time to Consolidate Your Loans?)
2. Losing Touch With Your Student Loan Provider
Always stay in touch with the companies in charge of your loans. Many loan companies have online services to view loans, interest rates and payment histories. In addition, if something comes up and you need to delay a payment you can connect with an agent online. Proactive communication with your loan provider is key.
3. Not Researching Student Loan Forgiveness Programs
Many students don't think they are eligible for student loan forgiveness programs or forbearance. According to the My Great Lakes website, these are some of the most common types of loan forgiveness and discharge.
- Teacher loan forgiveness
- Public service loan forgiveness
- Closed school discharge
- Total and permanent disability discharge (For related reading, see: Student Loan Forgiveness: How Does It Work?)
4. Being Unaware of When You Have to Start Repayment
Prior to graduation, students receive a letter indicating the six-month grace period before loan repayment begins. The letter will outline the balance, interest rate and monthly payment. Inquire about reductions in interest rates for making automatic payments. Students who establish automatic payment for their direct loans may receive a .25% interest rate reduction.
5. Failure to Plan for Rainy Days
Try to save money in case you run into an unexpected expense such as car repair or hospital bill. Having a cushion helps when you need to pay your cell phone bill and rent, but still have student loan payments or expenses. Many experts encourage recent grads to save up three months of expenses.
It is easy to assume once you secure that dream job that you won’t experience money woes, but with newfound freedom comes rent, car insurance, food and paying back student loans. Create your monthly budget to help track your income and expenses. Once you understand your monthly cash flow, you can see the big picture and determine your priorities.
Student loans don't have to be a huge nightmare. Use these steps to lessen the stress of student loans and manage them effectively.
(For more from this author, see: Fantasy Football and Finances: How Planning Is Key.)