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Student loans are the catch-22 of college. Yes, they can help you pay for a degree at your dream school—an investment you’ll be reaping the benefits of for life. But you’ll also likely be paying off student loans for years—even decades—after graduation. It’s a big commitment.

Student loan debt is at an all-time high in the US, which makes sense considering that average tuition and fees have doubled or even tripled over the past few decades, after adjusting for inflation. Sixty-two percent of students polled in a recent CampusWell survey said they have student loans. In 2019, student loan debt reached $1.41 trillion nationally, with the average borrower paying off $35,359, according to data from credit reporting agency Experian. Needless to say, student loans are not something to enter into lightly. “If you must take out loans while in school, think of it as a means to an end or even as a necessary evil,” says Kathy Rosa, associate director of student receivables at Boston College in Massachusetts.

"With the right strategies, managing and paying off that debt won’t feel like such a burden."With the right strategies, managing and paying off that debt won’t feel like such a burden (and will help ensure you’re not still paying bills by the time your kids are headed for college). The first step? Understanding the types of student loans available and what you’re entering into.

Understanding your loan

“Loans generally fall into two categories,” says Rosa: federal direct student loans and private student loans. “Federal loans are lent by the government and funded directly from the Treasury. Private loans may be from banks, credit unions, or other privately backed entities who are willing to lend to university students if they meet certain qualifications,” she explains.

Take federal loans first and apply for private loans only if you still need them, says Rosa. “Federal is always preferred. They have remedial help and assistance when you need it,” she says. If you don’t get a job as quickly as you’d hoped after graduation, for example, it’s more likely you’ll be able to defer starting your payments for a couple more months with a federal loan than with a private one. “A private sector loan has none of these [accommodations],” says Rosa. Private lenders tend not to have sympathy for students who might have a hard time getting on their feet after college—when the payment is due, it’s due, she explains.

APR—APR stands for “annual percentage rate.” That’s how much it will cost you each year to borrow money.

Capitalized interest—This is unpaid interest that’s added to your principal balance, thus increasing the sum you’ll be charged interest on in the future.

Cosigner—Most student loans require a cosigner. This is someone with good credit, like a parent, who agrees to take responsibility if you can’t pay back your loan.

Credit score—Your credit score is a way of summarizing your financial history and measuring your ability to pay back your loan. The higher your score, the better.

Delinquency/Default—If you fail to make a loan payment, even just one, your loan will enter what’s called delinquency. If you fail to make a few payments, it’s called defaulting on your loan. This tanks your credit score and can cause financial problems for years to come.

Deferment—If something comes up that leaves you unable to make loan payments (say, you lose your job), you might be able to get a deferment. It’s essentially like hitting pause on your payments until you can get back on your feet.

Expected family contribution—Your “EFC” is used to calculate the amount of federal student aid you’re eligible for based on the amount of money your family can contribute to your college costs.

Federal work-study—Work-study programs allow you to work on campus to start paying off your loans while you’re still in school. Ask your administrative or financial aid office what they offer.

Grace period—This is the time you get between graduating (or dropping out) before you have to start making loan payments. It’s typically six to nine months.

Grants/Scholarships—Money for college that doesn’t need to be repaid! Every little bit counts, so ask your school advisor about grants and scholarships you might be eligible to apply for.

Interest rates—Borrowing money, whether it’s from the government or from a private lender, isn’t free. The interest rate is what a lender charges you for borrowing money, calculated as a percentage of the unpaid principal (see definition below). Depending on the type of interest attached to your loan, it can add up very quickly, so make sure you understand exactly what you’re being charged and speak to the financial aid office for clarity.

Principal balance—The amount of money you’re borrowing on which you will be charged interest.

Repayment period—How long you’ll have to repay your loans. The longer you take, the more you’ll end up paying in interest.

Subsidized loan—With this type of loan, the government pays the interest while you’re still in school so you don’t have to.

Unsubsidized loan—A federal loan that is not based on financial need. You are responsible for paying off the interest that accrues while you’re in school.

Expert advice for handling your student debt

Two people sitting at a desk looking at paperwork | how to pay off student loans fast

1. Understand what you’re getting into

“One should always first ask themselves if they really need to take on debt,” says Rosa. If you can pay for college by other means, like family assistance, scholarships, or grants (remember that free money!), you should pursue those options first.

If you do need to take out a loan, “knowledge is key,” says Rosa. “Know the types of loans you have taken out and understand their terms and conditions.”

  • Do my loans have a grace period?
  • What is the minimum payment (called an installment) for each loan I will be expected to pay each month?
  • How long will it take to pay off my loan?
  • Is my loan subsidized or unsubsidized?
  • How often does interest accrue, and what are my rates of interest?
  • Can I pay down or pay off my loan at any time?
  • Will my loan interest capitalize, and if so, when?

If you have a federal loan, go to Studentaid.gov to view your loan debt and find repayment information.

2. Make a budget—and stick to it

To pay off your loans as quickly as possible, you’ll need a good budget.

"Cash flow= money coming in - money going out"The first step is to get a handle on your cash flow: how much money will you have coming in each month and how much your regular living expenses are—including monthly loan repayments.

Don’t forget to budget in some “fun money” too. But try to think in the long term: The more money you reserve for shopping, dinner out with friends, or traveling, the longer it will take you to pay off your loans. (And the more interest you’ll end up paying over time.)

For an in-depth guide on how to make a budget, check out 7 steps to pain-free budgeting.

3. Start payments ASAP

Typically, you aren’t expected to start paying off your loan until after you’re finished with school (whether you graduate, drop out, or dip below full-time status)—but that doesn’t mean you can’t start making payments before then to get a head start. “Anytime you pay off a debt quicker, you’re going to reap the advantages of that. Namely, you’re going to have less interest charged over the long run,” says Rosa.

 There are two ways to do this: Increase your monthly payments, or pay off a lump sum.

Say you get a part-time gig during college and have some extra cash each month. Making regular payments toward your loan can help reduce the principal and interest you’ll be paying after graduation. “Make some payments during your degree,” says Jose A., a first-year graduate student at the New Jersey Institute of Technology in Newark. “They can be as small as $20 per month—they don’t even have to cover the accruing interest, but it still makes a huge difference in how much you will have to pay down the line.”

Even if you can’t commit to monthly payments, you can still work to start paying off your loans before graduation. If you come into a lump sum of cash—maybe you sell your car, get an unexpected tax return, or receive a signing bonus—some or all of that money can go straight toward knocking down your debt.

“Let’s say you sold your car and you didn’t need the loan that semester—you really should ask the school to return that for you. We can wire back the student loan disbursement for that semester,” explains Rosa. Then, you’d pay your tuition directly—interest free.

4. Set up automatic payments

Whenever you start paying off your loan, set up auto transfers from your bank to make sure you never miss a payment (which could result in delinquency). “I stress the importance of automatic draft payments (known as ACH, or Automated Clearing House, payments) so that the payments come out of your checking account monthly,” says Rosa. “This ensures on-time payments and protects your credit, as these loans are reported to credit bureaus monthly.”

“If you’re in a really tight financial situation, set up the autopayments to come out of your account, like, the day after you get paid”“If you’re in a really tight financial situation, set up the autopayments to come out of your account, like, the day after you get paid,” says Elliece R., a fourth-year student at the University of Regina in Saskatchewan, Canada. “[That way], the loan payment is definitely paid before you have a chance to spend the money on other things.”

Insider tip: “Servicers of federal loans offer a .25 percent reduction in interest if a borrower signs up for ACH.” That adds up to a good amount of money saved over time.

5. Prioritize what you pay off

Most likely, you’ll end up with more than one loan by the time you graduate, all of which may have different terms and interest rates. How you strategize paying them off matters. “If you’ve had five or six loans while you were going to school, and one is at 7 percent and one is at 6.1 percent interest, you would want to put your extra money, when you obtain it, to that loan that’s higher in interest rate,” advises Rosa.

To be clear, you always have to make the minimum monthly payment on all your loans to stay in good standing. But whenever you get extra cash to put toward your debt, make sure you direct it toward the loan with the highest interest rate.

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Article sources

Kathy Rosa, associate director of student receivables, Boston College, Massachusetts.

Berrington, L. (2020, January 22). 7 steps to pain-free budgeting. CampusWell. Retrieved from https://www.campuswell.com/how-to-make-a-budget/

College Ave. (n.d.). Student loan glossary. Retrieved from https://www.collegeavestudentloans.com/resources/student-loan-glossary/

College Board. (n.d.) Trends in college pricing highlights. Retrieved from https://research.collegeboard.org/trends/college-pricing/highlights

Kurt, D. (2019, November 15). Student loan debt 2019: Statistics and outlook. Investopedia. Retrieved from https://www.investopedia.com/student-loan-debt-2019-statistics-and-outlook-4772007

Rosenberg, E. (2020, January 1). How to make student loan payments while you’re still in school. Student Loan Hero. Retrieved from https://studentloanhero.com/featured/how-to-make-student-loan-payment-while-youre-still-in-school/

CampusWell survey, June 2020.