PAYING OFF 
STUDENT 
LOANS

Essential Tips for College Grads

Did you just graduate from college? Let us congratulate you: Congratulations!

If you’re like many recent graduates, you’re probably excited about the prospect of getting a job and earning a real salary for the first time, but also concerned about paying back the student loan debt you may have accumulated over your years in school. You’re not alone. Today’s college graduates are weighed down with much higher debt than previous generations, with the average student loan debt topping $37,000.

Although paying back those loans may seem like an impossible task, it is achievable. You’ll reach that day sooner if you take the right steps now.

Don’t Put It Off

The longer you delay paying on your loans, the more total interest payments you’ll make. If you’ve landed a good job, you may be tempted to buy a new car or make another large purchase. Hold off for a few years. Why? College students are used to living cheaply, and if you can refrain from upgrading your lifestyle for a while, you’ll be able to get a head start on your finances. By doing simple things like taking the bus and living with a roommate, you’ll be able to tackle your loan debt sooner. Getting an early start means you’re likely to have more money and financial flexibility when you’re older.

Prioritize

If you have credit card debt, pay it off. While student loans charge relatively low interest rates, credit cards typically charge much higher rates. New grads must learn to prioritize. For example, pay off the highest-rate card first, and then work your way down until your lowest card is paid off. Make it a personal rule not to charge anything new as it’s much more difficult to get out of a hole of debt if you keep digging it deeper.

Know the Terms and Conditions

Each lender offers flexible repayment plans/choices, and it is up to you to know the terms and conditions of your loans. To make the right decision for your personal situation, you must fully understand your options regarding grace periods, deferment options, loan forbearance, consolidation, adaptable payment schedules, and flexible payment methods. Check with your lender to learn about your options.

Don’t Ignore Financial Priorities

Even with student loan debt, you should consider investing in a retirement plan, setting aside at least 10 percent of your income. The best place to contribute, if available, is to a 401(k)—especially if your employer matches contributions—but you can also contribute to a traditional IRA or Roth IRA. Even though putting money in one of these retirement vehicles rather than repaying your student loan debt means more interest payments on the loans, you’re likely to come out ahead in the long run because of the tax savings and growth potential of the retirement accounts.

You should also build an emergency fund that covers at least three months of expenses, which can save you from having to charge unexpected expenses and tide you over in case you lose your job. Finally, consider enrolling in a life insurance policy once you have other people depending on your income.

Consider Your Potential

How aggressively you pay off your debt depends in part on the long-term income possibilities of your career path. If you’re fortunate enough to be in a field that is likely to provide you a strong and steady income, perhaps you can forego some of the more aggressive methods of repaying your student loans. On the other hand, if you are in a low-paying career field and large salary increases don’t seem to be in your future, it is important to develop saving and spending patterns that you can afford and adhere to.