Dear Penny: I Just Graduated. Now How Do I Tackle My Student Loans?
On Aug. 2, I graduated from college with my bachelor’s degree in health care management. I am currently looking for a job and would like some advice on how I can start to tackle this beautiful thing called student loans.
If you could bless me with some of your Penny wisdom, I’d greatly appreciate it.
-H.
Dear H.,
You’re probably armed with a few copies of “Oh, the Places You’ll Go” right now, but not much in the way of cash or certainty.
Fortunately, you’re graduating at a time of low unemployment. You picked a practical field of study. In the words of Dr. Seuss: You’re off to great places. Today is your day!
I wish I could tell you don’t worry, don’t stew. But the truth is, it’s scary when loan payments come due.
OK, enough with the Seuss talk: There are no easy ways to make student loan debt go away, as you probably know.
Your action plan for paying off your debt will depend on so many factors: how long it takes you to find a job and how much it pays, your outstanding balance, and whether you have other debt.
Chances are good that if you have federal loans, they’re currently in a grace period, which is a temporary window you often get to find a job and get your finances together before you have to start paying for that degree. (Private lenders sometimes offer this option as well, but it varies by lender.)
If your loans are in a grace period but are accruing interest, start making payments as soon as you can for at least the interest. But if they aren’t wracking up interest and you find a job relatively quickly, you might take advantage of any grace period to funnel the amount you’ll soon be paying toward your loan into an emergency fund.
Which brings me to my next point: Do you know exactly how much you owe and what your monthly payments will be?
For federal student loans, use the National Student Loan Data System to access information such as your outstanding balance, loan status and who the loan servicer is, i.e., the company that manages your loan. (P.S. Your student loan servicer will always be your starting point if you have a question or have trouble making payments.) For private loans, you can find this info by getting a free copy of your three credit reports from AnnualCreditReport.com.
You can estimate your monthly payments on federal loans using the repayment calculator at studentloans.gov. There are a ton of online calculators that can help you figure out what you’ll owe each month on private loans as well. These will give you an idea of the minimum amount you’ll need to work into your monthly budget.
When the bills come due, you could take the debt avalanche approach, where you prioritize your loan with the highest interest rate first, or the debt snowball method, where you tackle the lowest balance. While technically you’ll save money with the avalanche, paying off student loans is a long-haul journey, so if seeing a loan balance completely disappear will motivate you, the snowball method might be right for you.
But probably the best way to tackle your debt once you find a job will be to keep living like a student so that you can make progress faster. If you can avoid lifestyle inflation by living with a roommate or using public transportation, or if you can take a second job, do it.
A final thought: With all the hype about America’s collective $1.5 trillion student loan debt, you might be tempted to look at getting rid of yours as your only priority. But your student loans are just one piece of your finances. While paying off your debt is important, saving for your future is just as vital — even if that means it will take a little longer to be free of student loans.
As Dr. Seuss said: Remember that life’s a great balancing act.
Your mountain is waiting. So… get on your way!
Robin Hartill is a senior editor at The Penny Hoarder and the voice behind Dear Penny. Send your questions about student loans to [email protected].
