While in undergrad or graduate school student loans may not feel like real money that you’re borrowing. Everyone takes out loans for school, and you are probably more concerned with getting good grades and joining student organizations than you are with how much debt you are taking on. But come graduation, it’s payback time and that’s when you start feeling the burden of the student loans.
As a recent college graduate, you are probably struggling to find an entry level job in your chosen field, and you may be acutely aware that your student loan lender is waiting for you to start making payments on your debt. How do you juggle your new expenses like rent, utilities, and probably car payments, along with monthly student loan payments, on an entry-level salary?
It’s important to understand that there’s no magic bullet that’s going to make your student loan debt magically disappear. Even bankruptcy will not get rid of student loan debt, and getting a forbearance or deferment, whether for unemployment or financial hardship, only postpones the pain (and in most cases, your debt continues to accumulate interest). But there are a few ways to make student loan debt more manageable as you pay your debt back over time.
First , don’t forget to deduct your student loan interest from your taxes. Up to $2,500 of your annual interest is deductible from your federal taxes, and you can take the full deduction if you make less than $105,000 a year, which won’t be much of a problem for most recent college graduates.
You can also have part of your debt forgiven with a career move into public service. Teachers who commit to working for two years in low-income communities can get a grant of $4,725 a year to pay off student loans. Similar programs also exist for medical practitioners, such as doctors and nurses, lawyers who work for non-profits, and some graduates who agree to serve in the National Guard.
If payments are too high, consider changing the terms of the loan through consolidation, or extending the length of the repayment term.
For example, let’s say you have a $23,000 loan at a 6.8 percent interest rate. If you extend the term on that loan from 10 years to 20 years, you can cut monthly payments from $265 to around $176. You will end up paying more in interest over the course of the loan, but if manageable payments are important to you, it may be worth it as a short term solution.
If all else fails, lenders will work with you to hammer out a loan deferment or forbearance if you request it. This type of agreement gives you a hiatus on your loan payments for six months to a year. Interest will continue to accumulate on your loan, but your payments (of $0.00) will be recorded as having been received on time, and it will give you time to recover from a layoff or other financial emergency.