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Managing Student Loan Debt

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College graduation day is supposed to be fun, but it’s hard to celebrate when there is a hefty student loan debt attached to your diploma

That is the grim reality for 72% of the Class of 2017 graduates, who owe an average of more than $37,000 for the four years (or longer) they put in earning a degree. They have a six-month grace period before the first loan payment is due and for most of them, this is not the way they expected to start their adult life.

It doesn’t seem fair, but that’s what it’s like to be a student in debt. College isn’t really over until you’ve paid off the last of your student loan. This page will offer tips and advice on how to manage student loan debt, grow your finances and maintain a healthy credit score.

Student Debt at $1.4 Trillion

Student loan debt isn’t just a problem, it’s a crisis, but there’s a good side to this crisis. Economists call student loans “good debt,’’ because they provide educational opportunities that otherwise might not be affordable.

Unfortunately, many graduates head out in the world with credit card debt alongside their student loan debt.

Students owe an estimated $1.31-trillion for loans in 2017. Approximately $4,000 in student debt is accrued every second. The average student debt for a 2016 college graduate was $37,172 (up 6% from the previous year).

Living with student loan debt is not easy. Want a diploma? It’s an expensive proposition.

According to 2016 statistics from the U.S. Department of Education, more than 20.5 million students are enrolled in college and the average tuition for in-state students at four-year public schools was about $9,410. For private schools, the total was about $32,405.

Add in another $11,000-$13,000 for room and board and you can figure it’s going to run you at least $20,000 a year to go to school … and that’s just for state colleges and universities. If you’re aiming for the most elite schools, the costs are approaching $60,000 per year.

While much of a college student’s debt comes through loans, credit cards leave a dent in the balance sheet. According to 2016 data gathered by, 76% of people who had student loans also were carrying a credit card balance. In fact, credit card debt grows faster among young adults (age 18-24) than any age group.

According to the U.S. Department of Education’s National Center for Education Statistics, 41% percent of 2016 graduating seniors had credit card debt, averaging $3,000. Those with student loans, had a higher credit card balance at $3,176.

It’s troubling because studies have shown that the most effective handling of finances comes for people who learned early techniques of debt management.

See the problems? Now, what can be done about them?

How Budgeting After College Can Help Repay Student Loans

It is virtually impossible to navigate the road to financial success without knowing how to budget and college is a great place to start tracking income and expenses.

Budgeting is a two-step process that tells you volumes about your ability to manage money.

The first step is to determine monthly income from all sources. In college, that could mean money from a job, your parents, and the financial aid office (loans, scholarships or grants). After college, that list usually goes down to your job and whatever help your parents might offer.

Step two is to list expenses and this could take a while. There are fixed expenses like rent, utilities, phone/cable bill, food and maybe a car loan.

Subtract your fixed costs from your total income and whatever is left is your disposable income to use for eating out, movies, sporting events, transportation, laundry, clothing and health care.

Students who graduate with a sizable debt usually don’t know what happened to all of their disposable income and the same is true after college. If you have a budget, especially one that breaks down spending into every category possible, you’ll see that you dispose of income in places that will surprise you.

Here are some idea of how to lighten the spending of disposable income:
  • Live Like A College Kid: Some aspects of college life are worth keeping, at least in the short term. You can continue living with roommates to share in the rent and expenses. Nothing helps a budget like paying half or a third as much rent and utilities as the people who live alone.
  • Smart Clothing: You will need dressier clothes when you enter the workforce, but there are smart ways to owning a professional wardrobe. Invest in flexible, good-quality outfits for work. Dress down in everyday life (at least for now).
  • Learn to Cook: Eating out destroys budgets. Drinking while you’re out just compounds the problem. Learn a few easy recipes and eat in. Also, regardless of where you are eating, drink lots of water. A glass of water is free.
  • Dont Drive Alone: That means carpooling. Or it could mean public transportation. If you live in the right city, it might even mean walking and not even owning a car. No gas + no insurance + no repairs + no car payment = financial liberation.
What about fun? Yes, you can still have fun without spending much (or any) money.
  • Spend Time with Friends: The fine art of conversation has been all but lost thanks to the internet and social media. Why not revive it? Your grandparents called it “’’ Have some friends over, talk, have a pot-luck dinner, rent a movie, maybe play a board game. Good times. Minimal (or zero) cost.
  • The Great Outdoors: There’s a world of fun to be had at local parks or the beach. There might be some fees, but they are minimal. Get creative and you might find plenty of new adventures at a state park — guaranteed to be more affordable than a theme park.
  • If Its Free, Its for Me: Check out museums, exhibits, lectures and shows that are free, especially if you live around a college. Yes, free events actually exist. And you might learn a thing or two.

How To Make A Plan To Pay Off Student Loans

Debt, as you probably know, can’t just be wished away. It requires discipline. It requires sacrifice. It requires … a plan.

It’s always helpful to write down goals. It makes them concrete and makes them seem more real. And it gives you incentive.

Here are some steps to follow.
  • Use The Grace Period: Lenders give you a grace period after you graduate, maybe six months to a year before you must begin repaying the loan. Why not start right away? If your payment is $300 per month after the grace period, get out in front of the loan now. And you will also create the habit of putting aside that $300 each month.
  • Research Your Loans: Don’t just turn off your brain and mindlessly make the minimum payment. You can check the National Student Loan Data System to find all the repayment plans for federal loans. You could order a free copy of your credit report, which will name your lenders. You might utilize an income-based repayment plan based on what you’re earning. Consider loan consolidation. See if your loans qualify for a deferment, student loan forgiveness or a better payment plan.
  • Increase Your Income: You probably can’t immediately get a raise at your first job, but there might be overtime available. You could also start a side business or get a part-time job. Maybe your services or talents can command a price. All of it could produce money that’s used to pay down your debt.
  • Deduct: You might be able to reduce your taxable income by up to $2,500 on any interest you’ve paid for that tax year on student loans. Every little bit helps.
  • Seek Loan Forgiveness: Some employers offer student loan payments as a perk. Other jobs — any government position or job with a 501 (c)(3) nonprofit — will qualify you for student loan forgiveness after making payments for 10 consecutive years. There’s even loan forgiveness offered for working in a low-income area or rural community that lacks teachers, doctors, lawyers, dentists, social workers or other in-demand professions.
  • Sign Up For Auto-Debit: Some lenders will lower your interest rate if you enroll in an automatic payment plan. That method will also keep you away from late fees and missed payments.
  • Avoid More Big Debts: It might seem like common sense not to go out and charge a big item on your credit card or take on another loan, but not everyone is gifted with common sense. If you have dreams of a big wedding, purchasing an elite car or buying a home, they might need to be modified in the short term.

How To Avoid Defaulting On Student Loans

If you find yourself unable to make the minimum monthly payments on your student loan, be assured of one thing: they won’t just disappear.

If you stop paying for 90 days, you are delinquent. If it goes 270 days (nine months) you have defaulted on the loan and the consequences can be severe.

Student loans don’t have a statute of limitations. It is virtually impossible to have them wiped away during bankruptcy. They will stalk you throughout life. Don’t think you can escape.

If you make a late payment on a federal student loan, there could be a late fee of 6%. Ultimately, the government can garnish up to 15% of your wages and Social Security benefits. The government can also deduct 25% of each payment for collection fees, making the loan even more expensive.

Late or missed payments will show up on your credit report (for up to seven years) and harm your score.

Approximately $138 billion of outstanding student loan debt is past due. Two out of five student loan borrowers are delinquent during the first five years of repayment.

If you can’t make payments, ask for a deferral or forbearance. Neither method will hurt your credit score. When your account is brought up to date, it will improve your score.

If there’s a short-term issue — such as a job loss or medical leave — you can temporarily suspend payments on federal student loans. The downside: Your loans will still accrue interest, making them more expensive overall.

You could also choose one of several repayment plans like Income Based Repayment, Pay As You Earn, Revised Pay As You Earn and Income Contingent Plan for federal student loans that will reduce the monthly payments, but also stretch out the loan over a longer period. The plans tie your payment to your income and as long as you make payments every month, you don’t have to worry about default.

It’s always a good idea to ask for a free credit report every year, making sure your payment history is being reported accurately.

Whatever you do, don’t default! If you can’t afford the payment, it is better to contact your loan servicer and review your repayment option instead of simply not paying. By getting help as soon as possible, you can create a plan that works for you and your budget.

Make Use Of Resources To Pay Off Student Loans

If you find yourself in a bad spot, consider contacting the U.S. Department of Education for help or to speak with a professional.

Before heading to bankruptcy (which won’t dismiss a student loan, by the way), there are options of debt consolidation and debt settlement.

In debt consolidation, several of your debts are rolled into one. The debt’s amount doesn’t change, but you will have just one bill per month and the monthly payment should be less than what you were paying individually. Over time, you might save significant money in interest.

In debt settlement, the debt is reduced through negotiations with your lenders. A debt settlement company can negotiate directly with your creditors.

There are many reputable professionals, such as those at InCharge, who can help with student debt management. The key is communication. With early anticipation of a potential problem, then contacting the right people, you can arrive at the best-case scenario.


About The Author

Bill Fay

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].


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