Top 6 student loan tips for college graduates

If you've recently graduated, it's time to be proactive about managing your student loans. Here are six tips to follow.

Student loans are a fact of life for most college grads, as close to 45 million Americans have total outstanding student loan debt that collectively tops $1.6 trillion.

If you're one of the many recent graduates stuck with debt from school loans, it's important to be proactive in tackling loan repayment. There are at least six tips student loan borrowers should follow that will help them pay student loans fast.

  1. Know your terms
  2. Choose the right loan repayment plan
  3. Research student loans forgiveness
  4. Keep track of student loan refinance rates
  5. Create a budget to save money
  6. Decide if early student loan payoff makes sense

1. Know your loan student loan terms

First and foremost, you need to know who you owe, what you owe, and what the terms are of each of your outstanding loans. You'll want to find out:

  • Whether your loans are federal ones owed to the Department of Education or private loans owed to a bank, online lender, or credit union
  • What the interest rate is on your loans
  • What your minimum monthly payment is
  • Whether you have a grace period before you need to begin repayment and, if so, for how long it will last

Understanding your obligations as a borrower will help you avoid costly mistakes such as missing a payment and will enable you to create a solid plan for becoming debt-free.


2. Choose the right loan repayment plan

If you have private student loans, you'll be stuck with the payment plan you agreed to when you borrowed.

But if you have federal student loans, you'll have a number of different options including:

  • The standard repayment plan that will enable you to make the same payment for the life of your loan and pay it off in 10 years
  • A graduated repayment plan with a 10-year repayment timeline but payments that rise slowly over time
  • Various income-driven plans that cap payment at a percentage of your monthly income but have longer repayment timelines, at the end of which any remaining loan balance is forgiven.

Your choice of repayment plans will determine the size of your monthly student loan payment; the total interest you pay; and how long it takes you to become debt-free. Be sure to weigh the pros and cons of each plan so you can find the right fit.


3. Research student loan forgiveness

If you have federal student loans and you work in an eligible government or nonprofit position, you may be eligible for Public Service Loan Forgiveness (PSLF). If so, the remaining balance of your loans could be forgiven after 120 qualifying payments.

You'll need to jump through some hoops to get PSLF, including making sure you've chosen an eligible income-driven plan. If you can qualify to have part of your loans forgiven due to your career choice, make sure you're following the rules so you can have them forgiven ASAP.


4. Keep track of student loan refinance rates

While refinancing federal student loans would mean giving up the chance at loan forgiveness, as well as losing other important borrower benefits, there is usually no downside to refinancing private student loans if doing so allows you to reduce your interest rate.

You can use an online tool such as Credible to compare student loan refinancing rates from multiple lenders at once without affecting your credit score to see if refinancing will save you money.

With interest rates trending very low right now, it's a good idea to keep tabs on what rate you could qualify for so you can pull the trigger on securing a new refinance loan when it makes financial sense.

You can use Credible to compare student loan refinancing rates from multiple lenders at once.


5. Create a budget to save money

You'll want to ensure you have the money to make your student loan payments, cover other necessities, and save for other financial goals such as retiring. A budget can help you do that.

Budgets enable you to prioritize where your money goes so you can get the best value for your hard-earned dollars. You can also identify areas where you may be spending too much so you can make cuts and use your money more responsibly.

Budgeting also helps you to quickly see if your required payments, including student loan payments, exceed your monthly income — in which case, a switch to a different payment plan or refinancing to a loan with a lower monthly payment could be necessary.


6. Decide if early student loan payoff makes sense

In some cases, it makes sense to pay off student loans early — especially if you have high-interest private loans. In other cases, however, you may decide the opportunity cost of paying off your loans ahead of schedule is too high. After all, if you have only low-interest federal loans and the interest is deductible, you may be able to get a better return on your money by investing it rather than paying off loans ahead of schedule.

Of course, you'll always want to pay at least the minimum monthly payment on all your debt. But paying more than that isn't always the right move if you could make better use of your funds elsewhere. If you do determine that it makes sense to pay off some of your loans early, prioritize paying back the debt with the highest interest rate first in order to maximize your savings.