Have student loans? Here are 5 money moves to consider


Holly Johnson

Holly Johnson

Blog author Holly Johnson

Published October 25, 2017|4 min read

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If you’re a college graduate and drowning in student loan debt, you’re not alone. Make Lemonade reports there are currently around 44 million borrowers sharing around $1.4 trillion in student loan debt across the U.S.

Worse, the average indebted grad from the class of 2016 left school with more than $37,000 in student loans. That means the average monthly student loan payment for borrowers ages 20 to 30 is around $350. Yikes!

Obviously, some borrowers owe more on their loans – a lot more. It’s even common for those who went to graduate school to owe six figures or more on their loans. Heck, the ASDA reports that the average debt for 2016 dental school graduates was $261,149. Chew on that for a minute!

No matter how much student debt you owe, you do have some control. The money moves you make (and don’t make) now can make a big difference in your financial situation over the years. Here are some steps you should consider.

1. Figure out an ideal repayment plan.

Most student loan borrowers default into a ten-year, standard repayment plan for their federal student loans. This means the debt is spread out for repayment over ten years or 120 months, including both principal payments and interest.

While paying down your loans over ten years may be ideal, there’s a chance doing so will make your payment too high. If you owe the average $37,000 in student debt and have a 6% interest rate, for example, you would owe $411 per month. That payment may work better for some people than others, and obviously it would be a lot higher if you owe more on your loans.

Either way, you can choose from multiple repayment plans for your federal loans, and may even be able to stretch repayment for up to 25 years. If you did, your monthly payment would only be $238 per month, but you would pay a lot more in interest over time.

If you have an especially high payment, you could also look at income-driven repayment plans. These plans let you pay a small monthly payment based on your discretionary income each month before ultimately forgiving your remaining loan balances in 20 to 25 years.

2. Start using a monthly budget.

Starting a new job after graduation is a momentous occasion. All of a sudden, you’re actually earning money instead of just racking up debt.

This is a good time to start building positive money habits. By using a monthly budget and tracking your bills, you can prioritize your spending to make sure each dollar you earn counts.

There are many budgeting strategies out there, so try a few out and find the right one for your needs. The main thing you want to focus on is comparing what you spend to what you earn. Ideally, you’ll want to write everything down to make sure all your expenses are covered, then allocate some of your funds for savings and some for fun as well.

3. Pay extra toward your loans when you can.

If you owe a lot of money toward your student loans, it never hurts to make extra payments. Not only can paying down the principal of your loans help you get out of debt faster, but it can help you save a boatload of interest, too.

4. Consider refinancing your student loans.

If you can qualify for a lower interest rate than what you currently have, you may want to consider refinancing your student loans. Keep in mind, however, you generally need good or excellent credit to qualify for refinancing without a co-signer. You’ll also need to demonstrate your ability to repay your loans.

While refinancing may be the best move, it’s also important to note you can lose important federal protections if you refinance federal student loans with a private lender. For example, refinancing with a private lender disqualifies you from things like deferment, forbearance and income-driven repayment plans.

5. Avoid lifestyle inflation as much as you can.

Earning a real income for the first time in your life can make you feel on top of the world, but you shouldn’t rush to the mall for a spending spree just yet. While the bulk of your student loans are still hanging over your head, it’s smart to put off larger purchases like new cars or furniture. If you can live like a poor college student for a while longer, you can throw extra cash at your debt instead.

So, get a roommate, keep your old college furniture and drive your car a few more years. Because, trust us, paying down debt becomes much harder once you buy a home or have kids. Live a frugal lifestyle while you can and you'll thank yourself later on.

Image: PeopleImages