Understand how to pay off student loans before you start

You have repayment options for those pesky student loans

Did you go to college, or do you plan to? Then sorry to say this, but if you are like 40 million of Americans, you’re probably going to have to take on some serious student loan debt. The graduating class of 2015 had more student loan debt than any other in history, with students accumulating an average of about $35,000 per borrower. Those graduating this year will likely have even more.

The great irony of this is it’s never been more necessary to get a college education–with more and more entry level jobs requiring a degree from a four-year institution or trade school just to get in the door. But if there’s one upside to the rising costs of education, it’s the increase in resources for helping people pay off their student loans. Let this help you get out of this hole.

The first thing to remember, is paying off your student loans immediately isn’t always the best move (though it usually is). Income is a precious commodity, so you need to allocate it carefully. That $20,000 student loan may feel like a black cloud you need to rid yourself of ASAP, but look at the bigger picture first.

Do you have have any savings? If not, you better get some pronto. You never know when an emergency will pop up, so it’s wise to at least have a couple months of living expenses saved up. Do you have credit card debt? Get rid of that first. Credit card debt will hurt your credit score and ability to get a job or apartment. Plus, they usually come with higher interest rates.

Once you’ve decided to start paying off your loan, put together a payment plan. These can be income-driven, or you can pay as much as you want as long as it’s over the minimum. Keep in mind, the more you can pay early on, the less you’ll have to pay in interest over time.  If you can only afford the minimum payment right now,  that’s better than not paying at all! Doing so will prevent you from going into default, which hurts your credit score and ability to qualify for credit in the future.

Having trouble keeping up with payments? There are options like income-based repayment plans if you are just out of school and unable to afford the minimum payment. Some people can get their loans forgiven or paid for them based on their job. If you go to work in a public service job (such as doctor, police officer, firefighter, lawyer, etc.) you may qualify for loan forgiveness after a certain length of time. This also works if you live in certain low-income areas, join the military, or spend a certain amount of time teaching in a low income school.

But don’t think you have to go into the public sector if you want help with your loans. Some companies will offer student loan repayment up to a certain amount as a benefit, so take that into consideration during your job hunt.

The easiest way to manage your student loan payments is to set up automatic online payments–this way you won’t have to remember to pay them every month. Automatic payments will keep you on track to pay down  your loan balance while also giving you the option to make extra payments at any time.

If you can’t even meet the minimum, or find yourself missing payments, you should consider refinancing or consolidating your loans. This allows you to combine your loans into one larger one with a lower interest rate. Beware of private student loan companies that promise to consolidate your student loans for a fee. The U.S. Department of Education has many free options to help students consolidate loans to get back on track.

It’s also possible to defer or forbear your payments if you’re really in a bind. But don’t count on this as an option. Student loan deferment is only possible if you’re in an education program, experiencing an economic hardship, or are in the military. This is also only ideal if you have Federal Stafford loans, Perkins loans, or direct subsidized loans, since those are the only loans which the government will pay the interest until you begin making payments again. As for forbearance, you only get to pause or discount your payments for up to a year. Contact your student loan servicer for more information on whether you qualify for deferment or forbearance.

To estimate your repayment timeline, learn about changing your payment methods, and to contact your student loan servicer, check out the U.S. Department of Education’s website on repayment plans. They have tools and free literacy on the payment options that you may qualify for based on income, job, or credit standing.

Student loans are unfortunately a necessary evil. Despite their continuing rise, evidence remains that college-educated people have a dramatically higher earning potential than their non-college educated counterparts. Student loans can be a key to helping you get that education and, as long as you are smart with repayment afterward, they don’t have to handcuff you for the future.

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