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Student Loan Payments Before Graduation and During Grace Period

As you finish college and enter your student loan grace period, there are opportunities that can make a huge difference on your student loans.

Written By: Michael P. Lux, Esq.

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If you haven’t finished school yet and are thinking about your student loans, you are already ahead of your peers.

The efforts and sacrifices that you make now will make a huge difference in your financial future. Even though you don’t have a bill due, your balance is growing on a daily basis due to student loan interest.

We traditionally recommend that college students make interest-only payments on all of their student loans during school. This provides a monthly reminder of the cost of student debt. As balances grow, the monthly interest-only payments grow. It becomes a good reminder to save money wherever possible.

However, for people who are about to finish school, or who have just finished school, we have a few different suggestions for eliminating debt.

Don’t forget to leave yourself a safety net

Smart financial planning includes an emergency fund. If you don’t have kids or a mortgage, you may not need a very large emergency fund, but it is always a good idea to have cash sitting around for the unexpected.

Most people choose to save anywhere from a few months to a couple of years worth of expenses in their emergency fund.You should consider your sources of income and what would happen to you if you lose that source of income. What would you do if you ran into car trouble? Medical problems?

The idea behind the emergency fund is to give yourself some breathing room in case you fall on hard times.

Attack the private loans first

Your federal loans have a lot of protections on them that the private loans lack.

For starters, with the many income-driven repayment plans available on federal loans, your monthly payment will never be more than a small percent of your discretionary income. That means if you lose your job, your monthly payments will be $0. Federal loans also have programs like Public Service Student Loan Forgiveness. If work for the government or a non-profit might be in your future, you may want to hold off on attacking the federal loans until you learn more about Public Service Student Loan Forgiveness. Sadly, if you are already working in public service, this time won’t count towards PSLF.

Private loans normally have terms that are far less borrower-friendly. For this reason, it makes sense for most people to attack them first.

Go after the high-interest debt

When it comes to picking a loan, mathematically, the most effective way to do eliminate debt is to pay the minimum on every loan and then use every extra available penny to pay down the highest interest rate loan.

If you are still in school or in your grace period, it means you don’t have any student loan payments due. That frees up all your student loan payment money to attack your highest interest rate loan. (Sadly, extending the grace period isn’t possible.)

Once the highest interest rate loan is paid off, attack the next highest interest rate loan.

Now is the time to start planning

Call your student loan companies to find out what your monthly payments will be. Learn about the different repayment plans available for both your private and federal loans.

You may have variables like employment and rent as unknowns in the future, but the sooner you understand your monthly debt obligations, the better you can prepare for it.

Bottom Line

There may be a number of variables in your future, but one certainty is your student loans.

The more work you can do now to eliminate the debt, the easier things will be in the long run.

About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

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