Student Loan Tips for New College Graduates

May 7, 2008

How are you ever going to pay off your student loans?  Is your college debt going to follow you around for the rest of your life?

Investing in Your Future
Although it may seem daunting, if you approach your college loans as an investment rather than a burden it could help you get rid of your debt.  If you think about it, you’re not much different than a business that borrowed thousands of dollars in startup money.  You took out student loans to fund your professional training, now that you have the needed skills you can earn the money to pay back the debt.  First we’ll take a look at making your payments while managing your cash flow.

Student Loan Consolidation
Many small businesses use a variety of funding sources when getting started such as credit cards, personal loans, and money borrowed from friends and family. Once they begin earning a steady income, one of the things they might do to lower payments and simplify the expense is to consolidate their debt into one payment. 

Since college students in search of school money will also frequently use an assortment of funding sources, student loan consolidation may help simplify your college debt repayments.  Consolidation can also reduce your monthly payments, for example you could go from owing $200 a month on three different loans to owing $200 on one.  Obviously, you still have the same amount of debt and you’ll actually pay more interest over the long term. Another reason to consider loan consolidation is if you have loans at several different interest rates, you might be able to role them all into one loan with a better rate.

Lowering Your Payments
Of course, not all college graduates get a job right away, just like not all businesses are profitable right away.  There may be a period of time after graduation when little or no money is coming in. Even though cash flow may be tight, you still have to pay back the money you borrowed.  One thing you might look into is lengthening your student loan term, which should reduce your monthly payments.  Of course this will actually increase the amount of interest you pay over the life of the loan but can help your cash flow in the short term.

Delaying Your Payments?
One advantage that college graduates in debt have over small businesses trying to pay back startup loans is that repayment rules are a little more flexible for students.  If you haven’t landed a job yet and run into trouble making your monthly payments you can sometimes work with the lender to get a deferment, which allows you to hold off regular payments.  If you don’t qualify for the defermentthere’s also something known as a forbearance which lets you temporarily postpone regular payments, typically for a shorter period of time than the deferment.  Although these methods allow you to put off payments the interest on your loan will still be accruing.

Paying Off Your Loans
So far we’ve looked at cases where money is tight right out of school and you need help repaying your debt.  If, on the other hand, you do find a job and have money you can put towards making extra payments on your student loan then go for it.  The money you borrowed to go to school was an investment in your future earnings power.  If you see the results of that investment right out of school and start paying down your loans then your break even point on the money you borrowed will come sooner.

Don’t be discouraged if you can’t afford to accelerate your loan payments, your degree should pay for itself eventually.  Many students wouldn’t have been able to afford a college degree without borrowing money. You’re basically using leverage, borrowing money from the government at relatively low rates, to invest in an education.  You then use those skills to earn a higher salary and pay off the money you owe over an extended period. 

Student Loan Summary
You can use methods such as student loan consolidation, deferments, and forbearance to help manage the amount you pay for student loans as you’re getting on your feet.  Once you have an established salary, paying down your loans will reduce the amount of total interest you pay and help pay off the debt faster.

For more financial coverage for college graduates here is information about health insurance and investing tips for people just out of school.  Check back for the next article on spending and budgeting tips.


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Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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