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Taking on student loans is often a necessary evil. With sky-high tuition, it’s nearly impossible nowadays for a student to fully fund their own education without incurring any debt. Not only is debt currently a whopping $1.52 trillion and climbing, the default rate on these loans is 10.7 percent. This article will guide you through best practices when it comes to managing your student debt.

*This article is sponsored by College Ave Student Loans, a private student loan and refinancing service.


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1. Understand your loan

First, make sure you fully understand the loan you are taking on and if it is the most beneficial plan for you. Your first question is to evaluate exactly how much money you’ll need. Start by adding up your annual college costs, including tuition, fees, books, housing, etc. Then subtract what you already have covered by any scholarships, savings, family help, or earnings from a job you may work during school.

You will then need to tackle whether you will want to use a fixed or variable interest rate. Most students choose to use a fixed rate loan, as the interest amount won’t change due to market fluctuations. If you are borrowing a lot of money and won’t be able to pay it back for several years, you may want to use a fixed rate loan. But, a variable loan may be less expensive if you are only borrowing a relatively small amount of money for a shorter amount of time.

Deciding on a payment plan that is manageable, but also allows you to pay the loan back as soon as possible, is important in effectively managing your loan. While some lenders assign a loan term, others allow you to select how long you want to take to repay the loan. If an assigned loan term doesn’t work for you and your income, you may want to go the other route. Remember, the quicker you are able to pay off your loan, the more money you will save on interest charges. Use a loan calculating tool to see what your interest charges will be depending on how much money you will put in each month, and how long it will take you to pay it off.

There are also on-campus resources you can utilize to make sure you are choosing the best option for you. Talk with your financial aid office, especially if you are using a federal loan. Other departments may also be willing to give you advice, such as the finance department.

2. Shorten the time frame of your loan

Everyone knows this as a best practice of loans, but don’t know how to come up with the money to pay off the loan quicker. However, chipping away at the loan as much as possible–including while you’re in school, will save you money later.

“Anytime we have debt, we encourage accelerating the payoff,” said Cris Tuft, owner of Coordinated Financial Services*.

There are a few ways to accelerate this payoff. Try to make loan payments while in school, even if it’s just $20 a month. Making those small payments when you can will help decrease the amount of interest you’ll need to pay later.

Take a look at what money you have available, and what you’re spending. Reducing your cost of living is a great way to a) borrow less while in school and b) set aside more money to pay off the debt. Save on rent by living with roommates and in a cheaper housing unit. Save on food by cooking your own meals instead of eating out. Creating a spending budget will also be helpful to look at where you can cut costs and how you can best manage your money.

“We take a look at their budget. We have to work with that first,” said Tuft.

This also applies after college when you are really taking on your debt and attempting to pay it off. Although you will start earning more income when you begin a full-time job, continue to use low-cost living practices until you can pay off your full loan.

3. Re-evaluate your loan and debt when you enter the workforce

When you enter the workforce, you will most likely switch from working part-time to full-time, and may start making a predictable, annual salary. College Ave recommends using a certain rule of thumb for determining how much student debt you can afford to pay off at a time after you graduate college. The rule of thumb assumes that 10 years is a reasonable timeline for paying off student debt, and that you spend “half of the increase in average after-tax income from a college degree” on repaying your loans. In simpler terms, your total debt should be less than your starting salary.

With this in mind, you may want to refinance your loan after you graduate depending on any changes to your credit. You may have positive changes to your credit upon graduation if you have built a history—which can be as simple as using a credit card and paying it off. In this case, you may be able to refinance your loan and lower your interest rates. However, be weary of decreasing the payments themselves, as this will most likely lengthen the life of your loan.

See also: Money-Saving Tips from College Ave

Paying for college is no easy task, and many find themselves in unmanageable student debt. Understanding what loan is necessary and best for you and how you can best repay it is important for effectively managing a student loan now and in the future.

*Securities offered through LPL Financial, Member FINRA/SIPC.

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