7 Steps to Managing Your Student Loan Debt Better in 2015
NEW YORK -- Student loan debt is second-highest among household debt expenditures (behind mortgage debt and just ahead of credit card debt) at an average of $32,264 each household. In total, Americans owe $1.3 billion in student loan debt, up 8 percent from 2013 to last year.
%VIRTUAL-pullquote-Student debt burdens are weighing on the economic fortunes of younger Americans...%That's a lot of money, and paying it back is not only an obligation, it's a must if you want to maintain good credit.
Unfortunately, studies show that excessive student loan debt is holding young college graduates back in life.
"Student debt burdens are weighing on the economic fortunes of younger Americans, as households headed by young adults owing student debt lag far behind their peers in terms of wealth accumulation," says a May study from Pew Research.
To catch up, what student loan borrowers really need is a battle plan to alleviate all that debt. College tuition lender SoFi.com offers a seven-point plan for grads to pay it off as quickly as possible:
1. Set up automatic payments. This is a "two-fer" you can't miss. If you set up a automatic transfer, "not only does it minimize the chances of missing a payment, most lenders offer a 0.25 percent interest rate discount for doing so."
2. Make bi-weekly payments. Add an extra payment and cut your student loan bill faster. Paying every other week instead of monthly adds up to an extra month's worth of payments each year, Sofi points out.
3. Keep forbearance to a minimum. Forbearance may buy you some time if you can't make payments, but it's not a real problem solver. "Forbearance can be a lifesaver, but in most cases, interest continues to accrue while the loan is on hold -- costing more in the long run," Sofi says.
4. Learn your loan lingo. To pay down your loan more quickly, you really have to do your homework and understand student loan terminology. "To make informed choices, learn how 'interest capitalization' works or what the difference between student loan consolidation and refinancing is," the company says.
5. Consider refinancing. With student loans, you always want the lowest interest rate possible -- that reduces your monthly and your total loan payments. "The two best ways to save money on student loans are to prepay and/or refinance your loans at a lower interest rate," Sofi says. "Refinancing is usually an option to explore after you've left school, increased your income and improved your credit. The lower your new rate is, the more you'll save on interest."
6. Break down your goals. Sofi says its helps goal-setting if you do it while remembering the acronym SMART, standing for "specific, measurable, achievable, results-oriented and time-bound" and then to "keep them front and center."
7. Figure out federal loans. You actually can refinance federal student loans. "There's a common misconception that federal loans can't be refinanced, but in fact a handful of lenders (including SoFi) do just that."