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Your Money

Credit & Debt

Getting Your Student Loans on Track

A Little Research Can Have a Big Effect on Your Balance

When Hannah Jones graduated from Kalamazoo College in Michigan last June, she was confident about two immediate, major life goals: getting an awesome job at a nonprofit, and paying off her student loans.

Make the most of your money.

Like many recent graduates, Jones feels the weight of her education debt — for her, the total is about $34,000 — and though she might be able to opt for a long-term repayment plan, she's hesitant to push out her payoff date.

"If I'm still making loan payments in 20 years, I'm aware of how much I'd pay in compound interest and that stings," she says. "I spend quite a bit of time these days doing research on all my options, because I would love to get this paid off as soon as possible."

Jones isn't alone in wanting to clear her student debt burden. In a recent poll, about 30 percent of millennials cited student loan payoff as their biggest financial challenge. In addition, a recent J.P. Morgan Asset Management research report says the average student loan balance in the mid-1990s was about 20 percent of a recent graduate’s median income; today it’s closer to 50 percent.

How Student Loans Work

For many students, loans are often put together from a number of sources, including federal loans like Perkins, Stafford and PLUS, which each have fixed interest rates and specific times for repayment to begin.

For example, Perkins loans have a nine-month deferment period, as opposed to six months for Stafford and PLUS. Deferral is helpful for some students, because it gives them a cushion between getting a diploma and receiving a first paycheck.

Students may also add private loans into the mix, sometimes cosigned by parents. Unlike subsidized federal loans, in which the government pays the interest that builds up while someone is in school, private loans tend to be unsubsidized, which means students will be paying the interest accumulated while they were studying.

The first step in repayment is to understand how much you owe, how long the deferral period may be, and the role that interest plays, according to Heather Jarvis, a national student loan expert who gives frequent talks on the subject and leads efforts to expand student debt relief programs.

"When you know your liabilities within the context of your overall larger financial picture, that's when you can start setting goals," says Jarvis. "For federal student loans, there are lots of flexible repayment options. A little research goes a long way."

Weighing the Options

Before slotting monthly loan payments into a budget, Jarvis recommends knowing the details for resources like these:

  • Income-driven repayment: This plan sets your federal monthly student loan payment at an amount that's intended to be affordable, based on your income and family size. There are three plans within this category, each with repayment periods of about 20 years, and your required monthly payment amount may increase or decrease as income changes over time.
  • Public service loan forgiveness: Designed to encourage graduates to consider public service jobs, this program will pay the remaining balance on some of your federal loans after you've made 120 qualifying payments.
  • Another option is loan repayment assistance programs through colleges and universities. For example, Jarvis says she graduated from Duke University Law School with about $125,000 in debt. She took advantage of a Duke program that helps graduates repay parts of their loan balances if they're making less than $75,000 a year. The university says the program is for students who want to take lower-paying government and public-interest jobs but feel compelled to seek higher-paying positions because of their debt.
  • Use the online Repayment Estimator tool from the U.S. Department of Education to estimate initial monthly payments, repayment plan eligibility, repayment plan cost comparisons, and interest totals.

Taking the time to understand the nuances of student loan options can be valuable — not just for paying loans off faster, but also for emotional health, Jones says.

"The more I research, the more optimism I have, because I feel a sense of control instead of feeling overwhelmed by my debt," she says. "Research takes the scariness away."

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