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    Lessons on Managing Student Debt

    Student loans continue to help students achieve their advanced education goals—while at the same time creating what may be lifelong debt for them. Last year nearly 70% of 2018 graduates took out student loans and graduated with debt that is just shy of $30,000. Having one (or two) college degrees generally results in higher lifetime earning potential and income, but depending on their career field and the U.S. economy, college graduates may have many financially difficult years of paying that debt down, or ideally, paying it off entirely.

    Coping with student loan debt can be challenging as it is becomes second largest U.S. consumer debt, falling short only after mortgage debt. If you started your career recently and joined the world of working professionals, it is important that you build some healthy habits to gain control over your student loan debt.

    Here are few tips that will help you get a handle on your student loans:

    1. Understand your current financial position – Understand what you own and what you owe. If you are just starting out you may owe more than you own, that is normal, especially if you have student loans. A great way to understand your current financial position is to grab a piece of paper, or even use an Excel® spreadsheet, and list your assets and debts. Be sure to include the interest rate of each debt which will help you prioritize which debt you should pay off first.

      Keep in mind that all debt isn’t equal. You might be surprised to find that your credit card may have a higher interest rate than your student loan. The higher the interest rate the more you are paying to borrow money. While your student loan might feel like an unmanageable monster that you want to pay off as soon as possible, it might be financially wise to focus on paying down higher interest debt first, while continuing to pay the minimum payment on lower interest debt.

      Tip: If you are interested in knowing your net worth, subtract your assets from your liabilities. Again, if you are starting out with debt, your net worth may be a negative number—but that is ok! With a disciplined debt payment plan you can begin to increase your net worth.

    2. Understand your student loan situation – Now that you have a list of what you own and owe, you can focus in on what you owe, specifically your student loans. In addition to understanding how much you owe and the interest rate of each loan, you also want to understand additional loan details. On your piece of paper or Excel spreadsheet you will want to answer the following questions:

      • What bank or financial institution is holding my student loan?
      • Is my student loan federal or private? Depending on the type of loan you could have flexibility with your repayment plans or under special circumstances even qualify for loan forgiveness. The National Student Loan Data System can help you determine this.
      • What is my monthly payment?
      • Is my loan payment a fixed amount or variable? When will my loan be paid off? 
    3. Create an action plan for managing your loan – Now that you have a deeper grasp of your financial position and features of your student loans, you can begin to create a plan that works for you. Here are some things to keep in mind:

      • Before refinancing your student loans, seek the guidance of a professional who can help you understand which options are best for you, your career aspirations and budget.
      • Set up automatic student loan payments to ensure you always pay on time. Many lenders will offer a slight rate decrease by doing this (.50% or .25%).  
      • Remember that the higher the interest rate the more you are paying. Pay high interest loans off first, even if that means focusing on paying down a credit card first.
      • At tax time use your student loan interest deduction – which can give you up to $2,500 of federal and private student loan interest deduction on federal income tax return.
      • Consider a part-time job that will allow you to contribute extra to your student loans. 

    When you’ve completed your analysis, you can begin to come up with a plan that works for you.

    Posted: August 19, 2019 by Delta Community