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Dear 2016 College Seniors: Tips for Paying Your Student Loans

Loans, Student Loans

Dear 2016 college seniors:

Congratulations on your upcoming graduation! What an exciting time. In the coming months, many of you will move to new cities, travel, start new jobs or begin graduate school.

But many of you also are saddled with student debt. You may move back home to save on rent, or work a job you don’t love because you need the money. We know this because at NerdWallet, we help people make smart financial decisions and we get a lot of questions about paying off student debt. The numbers aren’t in for your class yet, but almost 70% of undergraduates in the class of 2014 had student loan debt, according to an October 2015 report by the Institute for College Access and Success.  

About six months after you graduate, your student loans will start coming due. To help you make the transition from college to student loan repayment, we’ve talked to three borrowers about how they’ve been tackling their student loan debt. Here are their stories.

Melanie held herself accountable to consistently repay her debt

There’s no way around it — paying off student loans isn’t fun. But if you miss payments or pay late, your credit score will take a hit and your servicer might send your balance to bill collectors. If that’s not motivation enough to keep you on track with your payments, find outside motivation.

Melanie Lockert

Melanie Lockert

For Melanie Lockert, who earned an undergraduate degree in theater at California State University, Long Beach, and a Master of Arts at New York University, that meant starting a blog called “Dear Debt.” She’d accumulated $81,000 in student loans between the two degrees and felt paralyzed by it.

“I was in a pretty dark place when I started my blog,” Lockert says. But the new outlet kept her accountable for making her payments and introduced her to a larger community of people struggling with student debt.

“The blog, in a large way, kind of changed the direction of my life,” she says. Unable to find a full-time job, she started freelance writing on the side and now writes full time.

Whether it’s a blog or a reward you promise yourself, a little motivation and accountability can go a long way.

Monica switched to an income-driven repayment plan

Unless you elect otherwise, your student debt will be split into equal monthly payments over 10 years. But you can choose from several other student loan repayment plans, including graduated, extended and income-driven plans.

Monica Leftwich

Monica Leftwich

Monica Leftwich, a single mother with more than $120,000 in student debt from two degrees, switched to an income-based plan, which caps her monthly payments at 15% of her discretionary income and will forgive her loans after 25 years. (If you first borrowed after July 1, 2014, your payments will be capped at 10% of your discretionary income and forgiven after 20 years).

Leftwich says her monthly payments are more manageable after switching plans, and she has extra money to fulfill other financial obligations. Since switching, she’s paid off other outstanding debt and refinanced her car loan.

To switch from a standard repayment plan to a graduated, extended or income-driven plan, talk to your student loan servicer.

Drew made payments more frequently

Student loans come with a price: interest. In fact, your loans have been accumulating interest since you first borrowed them. But there are a few ways to minimize the interest you pay on your loans.  

Drew Moody

Drew Moody

Drew Moody, who graduated in 2007 from Northern Illinois University with an English degree, recently finished paying off all his student loans. His strategy: making payments weekly instead of monthly. He divided his monthly payment by four so he was paying one-fourth of the amount every week.

By paying more often, Moody reduced his principal faster and therefore the amount of interest he paid.

You could also consider refinancing your student loans. Refinancing can save you money in interest if you qualify — the average borrower who refinances saves about $11,000, according to Credible, a student loan refinancing marketplace and NerdWallet partner — and can make your monthly payments simpler.  

Melanie paid more than her minimum monthly payments

When you can, pay more than your minimum monthly payment to help pay off your loan faster and save on interest. Whenever you make a larger-than-required payment, tell your loan servicer to apply the extra toward your principal instead of your next loan payment to ensure your payment lowers your balance.

To earn extra money to put toward repayment, Lockert scoured Craigslist and TaskRabbit for side gigs. She’s been a brand ambassador, worked in catering, and participated in medical studies.

Lockert paid off her student loans in December 2015, making one large payment of about $11,000. She’s ecstatic to be done almost 10 years after completing her undergraduate degree.

“Debt fatigue is real,” she says. But, she adds, “realize that it is temporary.”

So, 2016 grads, we hope these stories inspire you to tackle your student debt smartly and with less stress.

— Your friends at NerdWallet

Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: Twitter: @teddynykiel.

This article was written by NerdWallet and was originally published by USA Today.

Image via iStock.