Thrifty Thinking: Student Loan Tips

It's graduation season - and the start of when student loans need to be paid. GreenPath Debt Solutions, a nationwide, non-profit credit counseling and education organization, is seeing more people struggling with a larger amount of student loan debt. They recently put together a list of 10 tips that can save the former students some headaches and money, regardless of whether they’ve just finished school or are already paying on student loans.

1. Get to know your loans. Do you have federal or private loans? Perkins or Stafford loans? What are your interest rates? It's important that you keep track of the loan type, lender, balance, and repayment status for each of your student loans. These details determine your options for loan repayment. If you’re not sure what kind of loans you have, you can visit the National Loan Data System at www.nslds.ed.gov to see federal loans. You can always contact your school if you are having trouble finding loan records.
2. When is the first payment due? Different loans have different grace periods. A grace period is how long you can wait after leaving school before you have to make your first payment: It is six months for federal Stafford loans and nine months for federal Perkins loans. For federal PLUS loans, it depends on when they were issued. The grace periods for private student loans vary, so consult your paperwork or contact your lender to find out. Don't miss your first payment, and, in fact, you can begin paying your loans early, if you want to get a head start and start reducing your balance before the interest kicks in.
3. Put yourself on a budget. It’s critical that you live within your means by prioritizing expenses and spending only what you can truly afford. Begin by documenting your monthly income and living expenses. Make sure you have enough income to cover your “needs” before your “wants.”
4. Consider setting up automatic payments. Missing payments can quickly get you into financial trouble. Pay on time all the time. Setting up payments automatically through your bank account will dramatically reduce the chances of missing a payment.
5. Don’t increase payment period if possible. Interest charges can add up very quickly. If possible, pay off your loans within the standard 10-year period. Repayment programs that defer or lower payments will delay or reduce your monthly payment, but you will pay over a longer period of time and your balance will be larger.
6. Pay off loans with the highest interest rates first. You won't get penalized for paying off a student loan early. Consider using extra cash to pay down loans with the highest interest rates first. This strategy can save you hundreds or thousands of dollars in interest.
7. Explore your repayment options. If you are having trouble making loan payments, make sure you understand your repayment options. Deferment and forbearance temporarily stop payments, but interest continues to accrue and the loan balance continues to grow. Several repayment programs are available for federal loans. Programs for private loans can vary by lender. Loan consolidation is an option, but be sure it’s the right option because you can only consolidate one time. And never consolidate federal loans into a private loan.
8. Communicate with your lender. If you foresee problems making a loan payment on time, it’s important to communicate proactively with your lender or servicer. Be up front about issues that you encounter, and your lender should help you reach a solution and avoid defaulting on your loan. Part of the lender’s role is to help you establish a plan to pay off your loan. That means you should be working with —not against— your lender.
9. Open and read all of your mail. Pay close attention to every piece of mail you receive about your loans, both paper and electronic. Don’t ignore phone calls or letters from your loan servicer or a collection agency. If you have a problem, it won’t go away on its own. Student loans are not dischargeable in bankruptcy, so it’s better to deal with a problem right away.    
10. Take advantage of tax deductions. Depending on your income, you may be able to deduct up to $2,500 on the interest you pay on your student loan each year. This deduction will help reduce your annual taxable income, possibly resulting in a smaller tax bill.

For more information and additional tips, log on to www.greenpathstudentservices.org

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About GreenPath Debt Solutions

GreenPath Debt Solutions is a nationwide, non-profit financial organization that assists consumers with credit card debt, housing debt and bankruptcy concerns. GreenPath is a member of the National Foundation for Credit Counseling (NFCC), the Association of Independent Consumer Credit Counseling Agencies (AICCCA) and is accredited by the Council on Accreditation (COA).  For more information, visit www.greenpath.org.