Though graduation might not seem that long ago, the six-month grace period on federal student loans is ending this month for many Class of 2012 grads and now it’s time to start making monthly loan repayments.
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According to a report by the Institute for College Access and Success’s Project on Student Debt, the average student loan debt for Class of 2011 borrowers rose to about $26,500, a 5% increase from about $25,350 the previous year.
With a new post-collegiate lifestyle and expenses, it’s important for grads to keep track of their spending and create a monthly budget that includes their student loan payment, says Nancy Register, director of America Saves.
“They may find that they will need to cut out unnecessary items in order to pay down their debt or that they can pay a little extra each month to pay down their debt even faster,” she says.
To stay on top on payments each month and to eliminate debt as quickly as possible, here are four ways grads can keep up with their loan obligations.
Determine Loan Terms
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It might be difficult for grads to come to terms with the amount of zeros on the end of their student loan bill, but it’s essential to know the total amount owed, the interest rate and the expected monthly payments, advises Patrick Kandianis, co-founder of SimpleTuition.
“It’s kind of like going to the dentist and making sure you don’t have cavities--you would rather know how you can work out a plan to manage [your loans] versus not acknowledging the fact that you have them there,” he says.
Calculating repayments will make it easier for grads to make informed money management decisions to avoid starting a lifelong relationship with debt, says Patricia Christel, spokesperson for Sallie Mae.
“If you have a credit card, a car loan and a student loan payment, knowing the interest rate and balance size can help you decide how to focus extra funds.”
Stay Informed of Loan Servicer/Provider Changes
Federal and private student loans are often sold to other lenders and organizations and although the terms of the loan won’t change, it’s vital to keep new lenders updated about any changes in personal information.
“It’s important to take note of the new payment address or automatic payment instructions, and take any action as directed to ensure an uninterrupted track record of successful payments,” says Christel.
Kandianis says grads need to keep lenders up to date on their address changes to avoid falling behind on payments and paying late fees.
Make Payments Consistently
Graduates with the financial means to pay their monthly amount in full can tackle their debt more quickly. Deferment on unsubsidized loans and forbearance on any loan is like borrowing more because interest accrues each day based on the outstanding principal balance, says Christel.
“Taking a break from payments should be a last resort and as soon as you can return to making payments (even if your approved forbearance or deferment allows for more time), it’s wise to do so to avoid extra interest expense,” she says.
The experts point out that payments taken out through automatic bill pay can give grads peace of mind that their loan will always be paid on time and can possibly result in a lower interest rate.
Develop New Payment Plans if Necessary
If grads are having difficulty making payments, it’s important to develop a new plan and reach out to the loan servicer to discuss options, says Christel. Keep in mind that different loans have different options.
“A different payment plan or a temporary postponement of payments may give you the extra time you need,” she says. “If you need help organizing your finances, a licensed nonprofit consumer credit counseling service can offer free budget counseling.”
Even if grads have over borrowed, changing the structure on their loan repayment can help manage their current income more effectively, says Kandianis.
“If your standard repayment is $350 a month and you can get by but it’s really pressuring you, making the switch to a graduated repayment structure is going to knock that payment down pretty significantly percentage-wise,” he says. “That payment goes back up over time but a year from now, you may be making more money and you’ll be more secure, you can always make another change to a different structure.”