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Top 5 Ways to Manage Student Loans

College graduation should be one of the most exciting times in your life. You've worked hard to get your degree and prepare yourself for a successful and fulfilling career. Now it's time to get out of the classroom and take that next big step into the unknown. It's time to find out what you're really capable of accomplishing, and hopefully make some money along the way.

Although it's an exciting time, it can also be one of the most stressful periods for many graduates. Finding the right job is never an easy task, and you may quickly come to realize that your "dream job" just doesn't pay what you always imagined it would. Some may argue, "If you're doing what you love, then why does the money matter?" Well, the money does matter if it cost you $50,000 to get your degree and your monthly paycheck is barely enough to pay the rent and put gas in the car, let alone start digging out of the immense pile of debt that financed your education.

According to a study released in 2008 by The Institute for College Access & Success, recent college graduates carry an average of more than $20,000 in student loan debt, and this number is likely on the conservative side. Of course, the numbers don't even include credit card debt, car loans, or other forms of debt that most college grads have to deal with as well. What's more disturbing than the number itself, is that the percentage growth in student loan debt is outpacing the growth in starting salaries year after year. 2007 graduates carried six percent more debt than the class of 2006, while starting salaries rose just three percent during the same period.

The trends certainly don't look positive for future college grads, which is why now, more than ever, graduates must educate themselves about their options and develop a strategy for repayment of student loans. The following five tips will provide some food for thought as you set out to develop a strategy of your own.

1.) Never Forget the Basics

Know what you owe, make at least the minimum required payments, and always pay on time. You can't keep these basic rules of debt repayment until you get organized, so the first step in developing a repayment strategy should always include taking stock of your student loan debt. Build a simple spreadsheet that tracks how much you owe on each loan, what the interest rates are, how much the payments are, and when they are due. You can access all of this information for Federal Loans by searching the National Student Loan Data System(NSLDS).

2.) Lower your Monthly Payments

If cash flow is tight after graduation, one option to consider is lowering your monthly payments to fit your budget. For example, Sallie Mae, the nation's leading provider of student loans, offers four types of repayment programs- standard, extended, graduated, and income-sensitive repayment. You will automatically be enrolled in the standard plan, which offers the lowest overall cost, when you start repaying the loan. However, it's important to understand the other options in order to make a decision that best fits your personal financial situation. You can review the details of each repayment plan option on Salliemae.com.

3.) Explore the Pros & Cons of Loan Consolidation

Reducing the complexity of your student loan debt can make life more simple and help you stay focused on what matters most - becoming debt free. While a loan consolidation will combine all your loans into one monthly payment that may even be less than all your current payments combined, it's important to recognize that it still might not be the cheapest option. Consolidation typically extends your loan terms to more than the standard ten years. Therefore, your interest rate and monthly payment might be lower, but the total amount of interest paid during the life of the loan will be higher.

4.) Postpone Your Payments

No matter what, you are responsible for eventually paying your student loans. However, unlike most traditional loans, there are options that can help buy you some time if money is tight. A student loan, for instance, can be deferred for up to six months after graduation if you are unemployed or serving in the military. In some cases, you may not even be required to pay interest. Forbearance is another option that allows you to stop making payments for up to one year at a time. Interest will be accrued and capitalized if it's not paid, but forbearance could be a real life-saver if you find yourself dealing with a serious health issue or an economic hardship that makes it impossible to meet your monthly obligations. Learn more about the details of Deferment and Forbearance at Salliemae.com.

5.) When You Land the Big Promotion, Be Smart!

Your starting salary as a freshly minted graduate might not be what you imagined, but employers will often reward young high-performers with promotions and pay raises at an accelerated rate. When you do land that promotion you've been working so hard to attain, remember to revisit your repayment strategy before making other lifestyle changes. If you can afford to make extra payments, go ahead and do it. Not only will you reduce the overall cost of your student debt, but there is certainly something to be said about living life debt free. It's a feeling you will never regret.

on Tue, 2009-02-24 16:00