Seven Strategies for Repaying Student Loans

by Patricia Cutilletta
Morgan Stanley

Whether you earned a degree from Bradley University or a college halfway across the country, there is a good chance you have some form of student loan debt. In fact, students in the class of 2016 graduated college with more than $37,000 of student loan debt, according to a recent study.

While student loans can present new graduates—and their parents—with a few challenges, the debt is not insurmountable with a proactive attitude and positive mindset. Consider the following strategies:

Start early. Putting off the debt and ignoring repayments is one of the biggest mistakes people make when it comes to student loans. Like a credit card payment, procrastinating on student loan payments will only result in large amounts of interest and increased debt down the road. Tackling the debt early decreases the overall lifespan of the loan and helps ensure you have financial flexibility later in life, when your financial responsibilities are likely to be larger.

Budget. From rent and utility bills to groceries and transportation, new graduates are generally responsible for a variety of expenses. Although it may be difficult, student loan repayment must be grouped in with those regular expenses as part of your monthly budget. This may mean a smaller allotment for entertainment or travel. Just as failing to pay a regular utility bill might cost you access to electricity, inconsistent student loan payments might hamper your ability to eventually take out a mortgage or purchase a car.

Pay more than the minimum. Your number-one goal with student loans should be to eliminate the debt as soon as possible. Making only the minimum payment each month counteracts that objective by lengthening the amount of time the loan may inhibit your finances. The average monthly student loan payment is about $350, so only paying $25 per month will lead to a longer payment schedule, not to mention the interest accumulation over time.

Apply unexpected income. Who doesn’t enjoy a bonus or raise at work? While your first inclination may be to splurge on new clothes or take a vacation, consider allotting that money toward your student loan debt. This added income may allow you to either double your monthly payment or make a large bulk payment. Applying extra or unexpected income is a great strategy for expediting the repayment process, while preserving other areas of your financial portfolio.

Automate. Oftentimes, thinking about a large payment is the most difficult part. Consider working with your student loan company or financial institution to make the payments automatic. That way, you don’t have to physically make the payment each month. In addition to helping you keep up, automated payments can be an effective strategy to avoid potential late fees and/or interest accumulation.

Employ a matching program. Many parents want to help their recent college graduates with student loan debt while still fostering financial independence. A matching program is a great way to accomplish this goal. If mom and dad were to, for example, match 50 cents on the dollar on a $350 monthly student loan payment, the actual monthly payment would be $525. An extra $175 per month can go a long way in helping to make a significant dent in the overall total.

Think ahead. The actual process of student loan repayment begins four years prior, when a specific loan plan is selected. While financial conditions can certainly change, and there is no way to predict the future, work diligently beforehand to ensure you choose a loan program with parameters that meet your financial needs. Ideally, this should be a joint process between both the student and parents. Being mindful and thinking about repayment before it actually becomes a factor can make the process more manageable.

Student loans should not cast a shadow on the outstanding accomplishment that is a college degree or a new job. With a commitment to managing the debt early and a bit of extra determination along the way, you might be surprised at how quickly you can begin to alleviate the burden. iBi

Patricia Cutilletta is an Executive Director and Financial Advisor with the Wealth Management Division of Morgan Stanley in Chicago.

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