Most people come out of college these days with some kind of student debt. Those monthly bills may seem overwhelming, but it doesn't have to be difficult to manage your private student loan payments. From pre-college to post-college, it's important to practice good financial habits when it comes to your student loans. Here our top tips to being a responsible borrower.
Understand your loan.
The first step to being a responsible borrower is doing your research. Study up on all things student loans so you're an educated decision maker. If you're like most students, a school loan is the first loan they've ever taken out and there's lots of new information to take in. Start by getting a good grasp on the student loan gibberish and ensure you understand the difference between fixed and variable, subsidized and subsidized, and the cost differences in making in school payments versus making none. This is a big financial decision that will impact you for years to come, invest the time in it that it deserves.
Throughout the application process, you'll find yourself with a good collection of documents. Whether it's resources from your research or your loan agreements, keep everything organized so you can find it back if you ever need it. Create a folder (physical and digital) and clearly label what you're filing away so you can quickly find it in a search (physical or digital).
Don't borrow more than you need.
Most students need loans to afford college, but don't be tempted to get a loan to cover your desire to have the latest school gear from the bookstore. Some student loans can be used for non-class expenses like rent or utility bills, but if you can swing a part time job or summer job to cover those costs instead, you'll be miles ahead in the long run.
Pay interest as it accrues.
Interest starts to accrue on unsubsidized federal student loans and private student loans as soon as they're disbursed. At the end of the grace period (the 6 months after a student leaves school), the accrued interest is capitalized. This means that it's added to the principle balance of the loan, and new interest starts to accrue on that larger balance.
If possible, pay your loan's accruing interest while you're in school. This will result in a smaller principle amount at the end of the grace period, and smaller payments. You could potentially save hundreds of dollars depending on your loan terms.
Make payments on time.
Once you start making payments on your student loans, it's crucial that you do so on time. Late charges aren't a fun way to spend money and more importantly, poor payment history can negatively impact your credit. Get yourself organized with monthly bill paying, or better yet, set up automatic payments, you may even save on your interest rate by doing so. If you opt for the latter, stay on top of your bank account balance, especially if you have multiple automatic withdrawals; it can be easy to overdraft without realizing it.
Don't disappoint your cosigner.
You likely have a cosigner on your student loan, it's likely your parent or someone else you're close to. As a cosigner they're on the hook for your debt should you stop making payments. Their credit score could also be at stake if you're late on payments. If you're struggling to make payments, speak to your student loan provider to see what options you have. You may also want to consider refinancing your student loans as there may be a possibility to reduce your monthly payment.
If you have extra money, use it towards your student loans. It's not as glamorous as a wardrobe or vehicle update, but it will pay off in the long run. Paying more than the minimum is a great way to shrink student loan debt fast. Challenge yourself to increase your monthly payments regularly. As your salary grows, your student loan payments should too. Set a goal to increase your payments monthly or annually, so you'll pay less in the long run. You should even consider applying any bonuses and birthday cash you receive towards your principal balance.
If you manage your student loans responsibly, they won't take over your life. Start by doing your homework and continue being a responsible borrower by aggressively making payments on time, both in school and after graduation.