How to Pay Off Student Loan Debt After Graduation
With graduation day and commencement now in the rear view mirror for many, it is important that new college graduates start thinking about their financial future. That means don’t delay on tackling any student loan debt you might have accrued.
After graduation, you may be beginning your first full-time job, renting an apartment, or even purchasing your first vehicle. Either way, you will now be faced with a new monthly bill – your student loan repayment. While some parents are pitching in to manage the payments, not everyone has that luxury. According to a recent survey conducted by the student loan division of Discover Financial Services, 52 percent of parents said they are likely to help their child repay student loan debt in 2014, down from 58 percent the previous year.
In 2015, the average recent college graduate had $35,000 in student loan debt and the 2016 projection is only going up. The college graduation student loan debt is projected to increase 5.7% to $37,000, according to Mark Kantrowitz, a financial aid expert at Cappex.com.
While paying off your student loan debt can be overwhelming, here are a few tips to conquering your student loan debt.
1. Ignore the Grace Period
Most loans have a grace period, a “waiting period” after graduation during which no loan payments are required. While most students view the grace period as a period of financial break, ignoring the grace period and starting to pay your loan right away could save you a lot of money in the long run.
Using the $35,000 student loan average and the average student loan interest rate of 4.29%, a student who begins paying their loan right away will save more than $400 in interest expenses.
2. Prioritize your Loans
Faced with multiple student loans, what would you do? Would you:
A) Pay off the loan with the smallest balance first
B) Pay all you can on the one with the highest interest rate?
If you answered B, congratulations. Paying off the loan with the highest interest rate will save you in interest payments.
3. Enroll in Automatic Payments
If you have a steady source of income and control over your financials, you can choose to pay your student loan bills via automatic payments. Both the Department of Educations and banks like this method of repayment so much so that they typically offer a lower interest rate if you sign up. Most banks offer a 0.25% discount for automatic payments.
While that may not seem like a lot of money, it certainly adds up over time.
4. Deduct Your Student Loan Interest From Your Taxes
Each year you pay off your student loans, you’re paying a lot of money on student loan interest. Make sure you take full advantage of the Student Loan Interest Deduction on your federal tax return. You can claim all the interest you paid as a deduction for up to $2,500.
While student loan debt can be overwhelming, prioritizing your loans and following a few critical tips can help you save and pay off your loans in no time!