Student Loan Tips & Strategies

by Jessica Sommerfield · 0 comments

Approximately 37,000,000 million Americans had outstanding student loans in 2013, and the average amount of that debt is at least $24,000. These statistics show that student loan debt is a major plague on the personal finance of millions of people across the nation. Student loans have become a necessary evil in light of the rising costs of tuition, and since full-time students aren’t required to pay loans until after they’re out of college, it’s an easy option that doesn’t immediately affect your personal finances. Many people push aside any concern over their student loan debt (perhaps not even aware of how much they owe!) until they start receiving the first bills in the mail. What was an easy and hassle-free way to finance college at the time then becomes a major financial hurdle. There are deferment options, but eventually they have to be paid. To avoid staring at a $24,000+ loan statement at the end of your education, here are some options to keep your student debt from crippling your finances and your credit score down the road.

Tip #1: Pay The Interest
Unless you’re approved for subsidized federal student loans, you will be responsible for paying interest that accrues on your loan balance after you’re out of school.  While you’re not obligated to pay anything while you’re in college, it’s a smart move to at least pay your interest on a monthly basis. Any new interest that accrues on your student loan balance, if not paid, will be added to your principal (original loan amount) so that, essentially, you’ll be paying interest on interest. Depending on how much you’re borrowing, the amount of monthly interest that accumulates should be manageable and will keep your loan balance close to the amount you actually borrowed.

Tip #2: Don’t Borrow More than You Need
Just because you’re qualified and approved for a certain federal loan amount doesn’t mean you should take all of it. Keeping your loan amount as close to what you’re paying for tuition as possible will allow you to borrow less over the lifetime of your loan and eliminate the temptation to blow the refund money. It’s possible to return refunds to your lender or college even after you’ve received a refund; miscalculations don’t justify spending money you can’t afford to borrow.

Tip #3: Pay As Much as You Can Out-of-Pocket
Since most people know they’ll be going to college or sending their children to college in the future, there are other ways to save money and budget for tuition expenses that don’t involve going into debt for the entire amount. Again, the less you have to borrow, the better. Specific savings accounts known as 529 Savings Accounts and Coverdell Education Savings Accounts allow parents to save and invest money for their children’s education expenses. Many of these types of accounts are even tax-free or tax-deferred to allow maximum possible savings.

If it’s too late for these options, look at your budget and consider what you can afford to pay on a monthly basis. Anything you are able to pay in cash will reduce the total amount of your loan and make the transition to post-college life a little less burdened with debt. Even though student loans aren’t usually considered a bad form of debt unless they’re in collections, they are still debt. Don’t wait until you’re out of college to deal with them, or you might be dealing with them for a lot longer than it took you to earn your degree.

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