Preparing For Student Loan Repayment While You’re Still In College

With so many people owing student loans – including many of your classmates – it seems like they are just another part of life. But did you know that student loan debt is causing recent college grads and millennials to put off getting married, buying a home, starting their own business and saving for retirement?

Not such a great way of life, is it?

Student loan debt is a national crisis, but it doesn’t have to be yours. By preparing for your repayment while you’re still in college, you can get a jump start on your financial responsibilities and position yourself to be more successful in paying off your debts. By being proactive now, you can graduate with more financial confidence, less financial risk, lower interest charges and lower loan balances than you planned. If anything, you’ll step into your new adult life with hope for a debt-free future.

Here’s how to prepare for repaying your student loans while you’re still in college.

First and foremost, don’t take out more money than you need. Just because loan money is available to you doesn’t mean you should use it all. To take out as little loan money as possible, you’ll first need to determine what you needand what you want. The needcategory will include things like tuition, books and room and board. You should only be using your loan money for these kinds of expenses. What you shouldn’t spend your loan money on are things you want, like new clothing, late-night pizza or plane tickets for spring break. Make a list of your needs versus your wants and focus on using your loan money only for your needs. Sure, it may require a few small sacrifices, but it will help you keep your debt under control.

Once you cut your loan money usage to fund only your needs, you can find ways to cut those expenses even further. Here’s how.

Ways To Reduce College Expenses

Finding ways to reduce academic expenses and costs of living may require you to think outside the box. Here are a few ideas to get you started.

• Become an RA to get a free room. Some colleges also provide free or discounted meal plans, parking and even tuition.
• Instead of birthday or holiday gifts, ask for books or money for other expenses.
• Purchase used textbooks or see if you can rent books from the school store or library. You should also check to see if there are cheaper options.
• At the end of the semester, sell your textbooks back to the school store, online or to another student on campus to get some of your money back.
• Take classes at the local community college during the summer. You’ll pay less per credit hour and it can help you graduate early, which brings us to our next idea.
• Graduate early. By graduating a semester or so early, you could save thousands on room and board and tuition. If you can’t graduate early, at least graduate on time. Each extra semester will cost you thousands in room and board, tuition and class materials.
• If you live close enough, consider living at home and commuting to school to get rid of room and board expenses. Make sure you factor in the cost of commuting, which may include gas, insurance and parking.
• Study abroad for a semester. Education and living costs at many universities overseas are less expensive than in the U.S. Plus, you’ll have the opportunity to immerse yourself in a different culture, learn a different language and have a life-changing experience.

A common myth about scholarships is that you can only win one while you’re in high school. But there are many available for students to earn throughout their entire college careers. On top of that, there are new scholarships every year. And if you change your major, take up a new hobby or have a major life event, you could qualify for scholarships you may not have been eligible for in the past. Take time every year to search for scholarships and apply to as many as you can. Even a few thousand dollars can make a big difference.

Keep in mind: before accepting any new scholarship, make sure it won’t affect any grants or financial aid you are currently receiving.

Your loan servicer is the company that handles your student loan repayment. They’ll send you the bills, handle any problems and assist you when you need it. To prevent any issues with your loans, it’s important to communicate with your servicer, especially when you:

• Change your name, address or phone number
• Transfer to another school
• Graduate, drop out or become a part-time student

You can also talk to your servicer to learn more about your loans, get answers to any questions you may have and get any clarification you need. That way, you’ll have a better understanding of your loans and how to repay them when you get out of school.

For any issues you have with your current loan or any loans for the upcoming school year, you’ll need to contact your school’s financial aid office.

Unsubsidized federal loans and many private loans begin accruing interest while you’re in school and during the grace period after graduation. This raises the total balance due before you even start paying on them. To help prevent your balance from going up or to start decreasing your principal balance now, commit to paying some amount of money toward your student loans each month starting today. You don’t have to pay hundreds of dollars to make a difference.

If you have private or unsubsidized loans, paying just the monthly interest charge will keep your loan balance from growing. To find your monthly interest charge, do the following calculations:

• Find your daily interest rate by dividing your annual interest rate by 365 (days in a year).
• Multiply that number by your loan balance to get the amount of interest that is charged daily.
• Multiply that number by the number of days in the month to determine the interest charge for that month. 

For example, let’s say you have a $5,000 loan with a 5% annual interest rate. You would first divide .05 by 365 to get a daily interest rate of about .00014%. Next, you would multiply .00014% by 5,000 to get a daily interest accrual of $0.70. That means you are getting charged $0.70 per day in interest. Next, multiply that by 30 days in the month for a total interest payment of $21. To keep your balance from growing by $21 that month, pay that amount. If you pay over that amount, any remaining money will go toward paying down your principal balance.

If you have a subsidized government loan, you will not accrue interest while you are in school, so any payment you make toward that loan will go to paying down the principal balance.

Working while you’re in school will help you in a few ways:

• You can pay for things without using more loan money.
• You can save money.
• You can start making payments on your loans.

From writing for the school paper or lifeguarding at the pool to working in the cafeteria or giving tours to prospective students, colleges offer an array of on-campus jobs for students. Check out the job boards or call your school’s human resources department to see what’s available.

When it comes to making money in college and building your resume, see if you can find a paid internship during the school year. Not only will you get a paycheck, but you could also earn college credit, grow your network and gain the experience you need to get a job when you graduate.

Thanks to technology, it’s easier than ever to work around your schedule. Pick up a side hustle by driving for a ride share service or working for an on-demand delivery or courier service. Use an online freelance marketplace to offer your talents or create a profile on an online pet sitting and walking service or babysitting site.

Don’t have the time or energy for a job? Try selling your gently used clothing to the local consignment shop. If you live off-campus, consider renting your place out on the weekends when you visit home.

The less debt that you have when you graduate college the better. Aside from the obvious reason – less debt equals less stress – it will also set you up for future success. The less money you have going toward paying off debt, the more money you have to enjoy your post-grad life. That includes taking the job you really want, renting the apartment you love, taking more risks that result in big rewards, starting a family earlier or putting more money toward your retirement.

Stick to a budget to avoid spending more than you can afford. Instead of purchasing or leasing a new car, buy used and save on the monthly payments. If your campus is walkable or has transportation services, consider forgoing a car altogether. Avoid using credit cards at all costs. If you want to use them to help build your credit, consider a secured credit card or a credit card with a very low spending limit. When using credit cards, use only the amount you have available the day of purchase and pay the card off immediately. Always make your payments on time and monitor your credit.  

As you prepare to begin paying your student loans, you’ll be tasked with choosing a repayment plan – how exactly you’ll pay off your loans. These plans will differ on eligibility, the amount you pay each month and how long you pay. The payment plans available to you will depend on whether you have federal or private loans and subsidized or unsubsidized loans. At the time of this writing, there are eight federal student loan repayment plans:

• Standard Repayment Plan
• Graduated Repayment Plan
• Extended Repayment Plan
• Revised Pay As You Earn Repayment Plan (REPAYE)
• Pay As You Earn Repayment Plan (PAYE)
• Income-Based Repayment Plan (IBR)
• Income-Contingent Repayment Plan (ICR)
• Income-Sensitive Repayment Plan

Each plan has its benefits and disadvantages and one plan may benefit you more than the others. It is important to research and understand each plan and see which will make the most sense for you and your future goals.

Loan forgiveness is not always easy to get, but it is possible. If you work for a non-profit or your career involves service to the public, you may be able to have part or all of your student loans forgiven. Eligibility for these programs depends on several factors, including your line of work, the length of your career, the state you live in, your repayment plan and the type of loan you have. Here are a few examples of these types of student loan forgiveness programs:

• Public Service Loan Forgiveness Program (PSLF)
• Teacher Loan Forgiveness
• Loan forgiveness for doctors, nurses, lawyers and military
• Student loan discharge for special circumstances
• Federal Perkins Loan cancellation 

If you plan on applying for a student loan forgiveness program in the future, make sure you understand and meet their requirements. It is important, too, that you continue to pay your loans on time and that you don’t expect them to be forgiven. Relying 100% on these programs is dangerous as you can never be certain you will remain eligible or that these programs will be around when it’s time to apply. It’s also important to remember that these programs may only forgive up to a certain amount of your student loans and not the full amount.

When you consolidate your student loans, you combine all or some of them into one loan. This allows you to have one monthly payment and one interest rate, which can simplify the repayment process and even lower your monthly payment. However, approach this idea with caution as there are several disadvantages of consolidating your loans:

• You have a longer repayment period, which means you’ll pay more in interest.
• You could lose certain benefits, including interest rate discounts or loan forgiveness.
• You won’t be able to defer your loan payments if you go to grad school.
• You can only consolidate your loans once. If rates drop after you consolidate, you’re stuck with the fixed interest rate you have.

Having a plan in place will help you stick to your goal. While it can be difficult to create one for the future without knowing your income, start with a plan for while you’re in school. Before you create it, gather all your student loan information and make a list of following: 

• The type of loan
• How much you owe
• The interest rate
• Terms and conditions of the loan

Once you understand your student loan situation, decide how much you want to pay off by the time you graduate and go from there. If you have multiple student loans (and most students do), you may want to consider choosing a debt repayment method to help you choose which one to focus on paying off first. For example, with the snowball method, you focus on paying off the loan with the lowest balance first. With the debt avalanche, you pay off the loan with the highest interest rate first. 

Missing even one student loan payment can have a huge impact on your credit. An emergency fund can help cover the payment should you fall behind due to job loss, a medical emergency or any other unexpected life event. Start adding money to your emergency fund or savings account now so you have enough to provide at least one month’s cushion when your loans come due.

The more knowledgeable you are about your credit and finances, the more equipped you’ll be to handle them outside the college bubble. You’ll also be more prepared to tackle the big changes life throws your way without thinking the world is ending. And when you understand the terms of your loans, your credit cards and any other financial endeavor, you’re less likely to be taken advantage of. Luckily, there are resources like Rocket HQ^SM to help bolster your financial prowess now. Rocket HQ offers information on managing your finances and credit along with providing a free credit report that’s updated weekly.

For the best advice based on your specific financial situation and goals, we recommend you also speak to a financial advisor.