I teamed up with Khan Academy to give advice about paying back your student loans
Throughout May, many of you college seniors will be tossing your mortarboards gleefully in the air and opening envelopes with graduation cards from family. But in six short months those cards from Nana will be replaced with envelopes from the company holding your student loans. It’s payback time, and you need to get your act together.
The total nationwide student debt is well over $1 trillion (yes, that’s trillion); 70% of students are graduating with loans, and the average amount owed by each grad is more than $30,000. That first-job-out-of-school salary may not cut it.
The White House and Khan Academy want to help. At last year’s White House Call to Action on College Opportunity, the President and First Lady asked Khan to give students more relevant, relatable info about affording college. Khan, in turn, asked me to create a video in which I present key steps students need to take to pay back their loans. Check it out and then post your repayment questions on Facebook or Twitter!
And if you didn’t see my blog last week about the Khan Academy video I did for parents who are worried about their kids’ college costs, check it out here.
Confirm what you owe
A recent study from the Brookings Institution revealed that half of college students seriously underestimate their loan debt. In fact, one-quarter of students guessed a number only to find out they owed at least $5,000 more than they thought! Cluelessness is costly. Over the course of college, loans come from a variety of sources. Getting a handle on who and what you owe is critical to paying them back on time. One great resource? The National Student Loan Data System.
Choose the best repayment plan for you
Once you review what you owe, it’s time to think about how you’ll pay it all back. Various federal loan repayment options might be available to you. Some allow you to start with lower monthly payments that increase over time (this is called Graduated Repayment), others base your monthly payments on your annual income (these are known as income-driven plans). To find the best one, go to the Department of Ed’s Repayment Estimator. It breaks down options that can provide real relief, depending on your income and career. Another tip: if you’re pursuing a career in teaching, public health, law enforcement, or the military, you might qualify for a program known as Public Service Loan Forgiveness—after ten years, it wipes out your remaining federal student debt. You can find info about eligibility at studentaid.ed.gov.
Automatic payments are lifesavers
Can’t repeat this one enough. Late or missed student loan payments mean penalty fees and credit trouble, so sign up for automatic payments through your bank or (if possible) through your loan servicer. If you always pay on time, that definitely will be a stat in your financial favor.
What questions do you have about paying back your loans? How do your future career plans help you choose the best repayment plan for you? Please share your stories here or on my Facebook page.
This post was originally published on Mint.com.