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How to Keep Student Loan Debt Under Control

Learn what you can do to keep your head above water.

Student loans are most likely to be your largest debt until you buy a home. They could even out-weigh a mortgage, depending on your school, degree, and the number of years you spent in college. But just because you take out student loans doesn’t mean you must let that debt add to itself. Depending on the type of loans you took out, interest could be accruing from the moment you signed the papers. Don't let that frighten you; there is hope.

Sure, you don’t have to make payments on your loans as long as you’re taking some classes. That doesn’t mean, however, that whoever loaned you the money isn’t already looking to make money. They do this by charging compound interest on your loan. This means if you don’t pay off the interest due each month, that amount is added to the principal of the loan, which increases the amount of interest due every month.

There is something you can do, though. Pay your interest each month. If you pay your interest from the start, you can keep your loan at a more manageable amount. At least as manageable as the cost of college can be.guy with piggy bank

The first thing to know is what kind of loan you have. Direct Unsubsidized Loans and (almost all) private loans start accruing interest the day you sign the contract. With Direct Subsidized Loans, the Department of Education pays the interest up until the point you’re required to pay (see your loan paperwork to determine when this is).

Second, it’s very unlikely for your student loans to have restrictions on paying them early. So take advantage of this! Be sure to know what kinds of loans you have and any possible issues there may be paying your interest early.

Third, it works out well because the interest is going to be a reasonable amount, especially if you start paying right off the hop. If you take out $35,000 in loans with a 4% interest rate, your first-month’s interest is going to be about $116.67.

With that same loan, if you don’t pay off your interest each month, at the end of four years of school, plus an example two-year grace period, you’d start with upwards of $44,475.97 in debt. And the payment would be around $450.30 a month.

So the question is, would you rather scratch together $116.67 a month now or $450.30 later?

Don’t think you can manage roughly $120 a month? Here are a few things you can do to cover that amount:

You can, of course, pay more into your loan each month. Not only would you keep interest from becoming a problem, but you’d also be eating away at the principal.

In the end, the choice of how to handle your finances is yours. Talk with someone at your credit union to see what loans might work best for you, and in turn, how you might best manage to pay them back.