So You’re Graduating from College with Lots of Debt – Now What?

It’s never too early or too late to save for college when school is ahead of you. Time can be your very best friend when it comes to compound interest, whether you’re saving in 529 Savings Plans, Roth IRAs, or other college savings accounts. But for those of us who might not have learned our most valuable financial lessons until well into our 20s or 30s, we face the hard lesson of managing student loan debt when schooling has ended and the degree has been earned.

The situation that got you into your mountain of debt might vary wildly from the next person. Perhaps your or your family’s financial situation changed between taking out those loans and now. Maybe you never thought to look at the monthly repayment, assuming that lenders had your best interest at heart. Maybe you needed to step away from school before you finished and haven’t reaped the benefits of an earned degree. Whatever that situation might be for you, you now have a lot of debt – so now what?

Here are five things that can help anyone with student loan debt:

  1. Explore consolidation. Carefully. The Federal Student Aid office with the U.S. Department of Education offers a Direct Consolidation Loan that can centralize your loan payments to one bill and potentially provide access to repayment plans that might not have been available with your other federal loans. This sounds great on face value, but depending on the loans you already have, you may end up making more payments during the life of the new loan or losing any benefits you might have had with the previous loan. If you landed in the world of private student loans, consolidation primarily takes place with financial institutions or education lenders. Rates and terms can vary widely between institutions, so read the fine print and explore your options thoroughly before you sign your name to anything new. If consolidation isn’t right for you, consider speaking with a Consumer Credit Counseling Services counselor. They can work with you privately to help you develop a budget, figure out your options, and negotiate with creditors to repay your debts. Call 1-800-388-2227 to locate the office nearest you.
  2. Seek out loan forgiveness options, when applicable. Some loans, notably federal ones, offer opportunities for loans to be forgiven, canceled, or discharged. Teachers and public service employees may benefit most from these opportunities. Private student loans don’t tend to offer these kinds of forgiveness options, but it never hurts to ask your lender what, if any, benefits they may have to reduce or forgive your loan.
  3. Talk to your lender. If you find you can’t make payments, call your lender to find out you’re your options are. Options will vary widely between lenders, but getting friendly with the terms of your loan and talking directly with your lender can help you navigate your debt through life’s challenges.
  4. Put that direct deposit to work. Getting to know your “borrower benefits” as you’re paying your loans can reveal happy, albeit small, surprises. By setting up automatic deductions from your bank account, you may receive a 0.25% interest rate deduction. It might not seem like much, but that’s the removal of 0.25% interest every month for the life of the loan – and every little bit counts when compound!
  5. Break up your payments. Just because you have a due date on that bill doesn’t mean you can’t break up your monthly amount into smaller payments. In fact, you may get ahead of the interest compounding on your loans each month by getting yourself ahead (call your lender to find out more). If you get paid on a biweekly schedule, break your loans up into two and pay the smaller sum after each paycheck. And those wonderful months where there are three paychecks? Pay the biweekly amount as though it’s any normal pay week. That amount will go straight to your principle balance and once again get you ahead of your interest rate. (Fun fact: this theory applies to credit card debt as well.)

Student loan debt can be a heavy burden to bear as you are transitioning from college life to the working world, but it doesn’t have to cripple you.