Four Strategies to Help with Student Loan Debt

Traditionally, students throw mortarboards into the air when they graduate. For many college students, graduation is also a time when they begin throwing their money away by not repaying student loans properly.

After suffering through years of cramped apartments and ramen noodle diners, most college graduates are eager to get a job and start earning money. One more lesson, however, must be learned. Students need to understand the correct way to repay their student loans. To effectively manage their debt, grads should follow these five strategies:

1. Pay on time or call your lender

New jobs and salaries also mean more financial responsibilities. Sometimes, a loan payment gets missed in the transition. To keep their credit reports unmarred, many graduates opt for an automatic repayment plan. This simple procedure automatically deducts the loan payment from a checking or savings account.

If a financial setback makes a late payment unavoidable, contact your lender and explain the situation. You may be able to work out a plan to deal with short-term problems. If you say nothing and the loan goes into default, you face serious legal and financial problems.

2. Choose the right repayment option

As graduates get a handle on their cash flow, they can pick out the best loan repayment option. People in low-paying, entry level jobs may opt for income-sensitive repayment programs that align a monthly payment with their income. For those earning a heftier salary, a better fit is the standard repayment option with fixed payments and low interest costs. Watch out for interest-only payments that shrink monthly obligations but don't reduce debt over the long haul.

3. Consider consolidation

Debt consolidation is a great choice if you have more than $10,000 in loans at rates higher than current market interest rates. Be aware that the move can extend the term of your loan repayment, so make sure that you understand how much you'll be spending in long-term interest. Also, avoid combining government loans with private loans. You'll negate federal benefits such as deferment or subsidized rates.

4. Don't repay right away

Life after school isn't always rosy. Unemployment, economic hardship, or a desire to return to school can crimp your ability to repay your student loan.

You do have options. Deferment, for example, allows you to stop making payments for a specified period of time. There's a three-year limit for cases of economic hardship, but the time is unlimited if you re-enroll in school. You can also choose forbearance. Reserved only for cases of severe hardship, forbearance is granted in yearly increments. In either case, interest continues to accrue on all student loans.

A diploma in hand doesn't mean a student's education is finished. Students should study all the repayment and consolidation options, if financial times get tough. The learning curve can be unforgiving out in the real world. Smart graduates will improve their debt management IQs by learning how to best repay their student loans.