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Tips to Start Repaying Your Student Loans After Graduation

The latest research shows there are currently 44 million student borrowers in the U.S. that share $1.4 trillion in student loan debt.  The average Class of 2016 graduate has $37,172 in student loan debt. With many students choosing to continue their education beyond a Bachelor’s degree, students are taking on more of this debt later in life making it even harder to repay. Income that would be used to repay student loans is now competing with retirement savings, home purchases, and the costs of raising a family.  Although logging into your student loan account and seeing that balance can be overwhelming and you may want to avoid it at all costs, the sooner you develop a plan to tackle it, the more money you will save in interest and the sooner you can start saving more for your future.

When to Start Payments

Start payments right after graduation, if not before. Half of borrowers don’t start repaying their loans until age 34 or older! During that time, interest is accumulating which can add thousands of dollars and years to your repayment period. After graduation, continue living like a college student, at least when it comes to your budget. You’ve done it for 4+ years, keep it going a little while longer. Once you increase your spending, the odds of you resuming your college budget are slim to none. If you can stick with your college budget for a few more years, while earning a salary and taking advantage of your employer offered benefits, you can make some significant strides in paying off your loans and saving.

How to Prioritize

If you have credit card debt, start there. Credit card debt often comes with a much higher interest rate than student loan debt. Even though the amount of your credit card debt may pale in comparison to your student loan balance it is beneficial to stop the high interest payments first and reallocate that interest payment to your student loans.

Don’t neglect your retirement savings. Make sure you are contributing to your 401k at least the minimum amount to take full advantage of your employer’s match. This is free money that you don’t want to miss out on and it’s important to start the habit of saving for retirement early. Aim to gradually increase your 401k contribution as you pay down your loans.

It is also important to have an emergency fund built up. You don’t want to dedicate all savings to paying down your loans and cut yourself short on saving for an emergency. A good guideline is for a couple to have at least 3 months and a single person to have at least 6 months of living expenses saved in an emergency fund. Having a sufficient emergency fund in place will help you make it through an unexpected job loss, major repair, etc.

Now for the student loans, prioritize the loans with the highest interest rates. Try putting extra payments towards the loans with the highest rates while making the minimum payments on the rest. You may also want to look into a loan consolidation plan. There are many pros and cons to consolidating your student loans so be sure to do your research and consult with an expert before making any decisions.

Tips for Paying Off your Student Loans Faster:

Only 20% of borrowers have paid their loans down within 5 years. The faster you can repay the better. Consider making bi-weekly payments rather than monthly to save on interest. Also, check with your student loan lender to see if they offer a discount for ACH payments. Some lenders will reduce your interest rate by as much as 0.5% for signing up for automatic monthly payments. Have an extra $50 in your budget this month? Send it in with your next payment. By sending in extra, you will remove the interest on that $50 over the life of the loan, which can add up quickly.

The Student Loan Interest Income Tax Deduction is one deduction that is often overlooked. This deduction is available to taxpayers with an AGI of less than $80,000 ($160,000 if filing a joint return) and can reduce your income subject to tax by up to $2,500 per year.

Graduation is an exciting time that can often be dampened by the burden of student loans. Address it and formulate a strategy early on, and you can make great progress. 

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