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Parent’s Guide to Student Debt

You’re past the homework and final exams. Now that you’ve entered the real world, you may find yourself overwhelmed with the price of your diploma. The average student graduates with close to $30,000 in loans, and paying them off is often challenging with limited income. Manage your student loan debt with these tips.

With a federal loan, you may qualify for an income-based or pay-as-you-earn repayment plan. Qualifications depend on your debt size, income, family size and if you’re a direct loan borrower. These plans allow you to make lower monthly payments relative to your household income. You will typically pay 10 to 15 percent of what you earn per month. After paying on the loan for a certain number of years, the balance is forgiven. Usually, this takes 20 to 25 years. Since you’re stretching out payments, you may have to pay more in interest, and you may also have to pay income tax on the forgiven balance.

Consider consolidating your loans. This allows you to pay less per month because you can extend the loan term. However, extending your loan term means you will pay more in interest. Also, if you have private loans, consolidation may not be an option. Not all private lenders offer it, or they may not offer the option right away if the amount owed is too high. Even if you are denied the first time, continue revisiting this option, as it may become available after some of the debt is paid.

If you choose not to consolidate your loans, work toward paying off your biggest loan first. It may be tempting to start by paying off a smaller loan, but that won’t help you in the long run. Paying off your largest loan first helps you avoid paying more in interest over time.

Another way to avoid paying more in interest is to make biweekly payments instead of monthly payments. Because the payments are more frequent, there is less time for interest to accumulate. Also, it helps you pay off your loans a little faster. This is ideal if you are paid biweekly, as you can cut the same amount from each paycheck.

You may save money by using auto-debit if you decide to stick with a monthly payment plan because some lenders offer a discount for using this payment option. While the discount may not be much, it can save you quite a bit when applied to every payment over the long run.

While these methods can help reduce your debt amount, they don’t replace the tried and true ways of paying off debt, including sticking to a monthly budget, avoiding large purchases, and possibly taking up a side job. You may be tempted to take a trip to celebrate your graduation, but you will thank yourself in the future if you use all your resources to pay off your debt as quickly as possible.

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