How to Effectively Manage Student Loans


Just like mortgages, student loans are also considered ‘good debt’.  Besides providing the means for a college education, a student loan also increases your lifetime earning potential. What’s more, it creates an opportunity to establish your credit history, and lays the foundation for you to build good credit. Student loans give you an early chance to prove to lenders that you are a responsible borrower.

Yet, why are student loans often deemed risky? The reason is this: college students on an average graduate with a debt of $29,800. And about 11.5% of student loans are delinquent by 90 days or more, or in default. This growing default rate does not mean that you should entirely avoid taking out student loans. But it definitely calls for effective management.

Best Practices to Better Manage Student Loans

Make the right choice

Check and compare different student loans available to you. You have a choice between federal and private student loans. Federal loans may be more beneficial since they have the backing of the federal government. Other key factors to consider are: the loan repayment period, the interest rate that you will be paying, and other fees and charges that come with the loan.   Analyze and understand the loan thoroughly to decide which loan best suits your requirement.

Accelerate the pay off

One of the best practices for any loan is to pay off quicker. But how do you come up with the money to make these payments while still in school? Try to save small amounts whenever possible. You can do this by minimizing expenses and reducing your cost of living, saving on rent by living with roommates or living in cheaper housing units, eating out less and cooking your own meals, creating and adhering to a spending budget. These measures help you manage money better and also enable you to pay off a portion of your debt even before you land a full-time job.

Steer clear of trouble

Statistics show that 2 of 5 student loan borrowers are delinquent at some point in the first five years of repayment. If you’re having trouble making payments, talk to your lender immediately about your options. Federal loans offer the flexibility to temporarily reduce or suspend payments. But if you ignore your loan, your overall debt amount may increase dramatically over time making repayment much more difficult. This can also tarnish your credit history.

Paying for a college education is not easy. Student loans make this possible. But, you need to handle them well to avoid getting into an unmanageable debt situation. Understanding these loans thoroughly can help you manage them more effectively, and following these best practices will certainly make repayment a lot easier.