Paying Off Student Debt

Student loans are great when they're covering your tuition—but not so much when it's time to pay them back. The reality is, they won't go away until you pay them off. This seems daunting when you're just starting out in your first job, but it's important to start as soon as you can. Chipping away at them now will help you in the long run. Here are some tips to get started.

Know what you owe

Make sure you know exactly what you owe, to whom, and what the terms are. Schools typically provide the details about loans and repayment responsibilities when you graduate. If yours didn't, be proactive and contact the financial aid office for the information you need. You don't get a break because you didn't know the facts.

Look at your payment options

Most student loans offer multiple repayment opportunities, such as:

• A fixed monthly amount for 10 years
• An extended plan that gives you more time (in some cases, up to 30 years)
• A graduated repayment plan, where your monthly payment increases over time (on the assumption that your income will increase over time as well)
• Income-based repayment for federal student loans (available to students but not to parents), which uses a kind of sliding scale to determine how much you can afford to pay

Sometimes, lenders will cut your fees if you agree to an automatic payment, which can make paying less painful.

Consider a consolidation loan

If you have multiple loans, consider a consolidation loan. This rolls up all your individual loans into a single debt. It may even reduce the average interest rate. A consolidation loan is also helpful if you need to extend the terms of the loan, although remember that you'll end up paying even more interest that way.

Never miss a payment

You can't afford to ignore your payments. Period. The consequences for missing a student loan payment can be harsh and long lasting. Here's why:

• Late fees add up fast.
   
• Missing payments can damage your credit rating for years to come.
   
• If you're in default on government loans, the government can begin deducting payments from your paycheck directly and apply any income tax refunds toward the debt.

Take advantage of the breaks

You may qualify for certain debt-forgiveness programs. For instance:

• If you have a Stafford Loan or a Perkins Loan and teach in a school that serves low-income or disabled students, or where there's a teacher shortage, you might be eligible for a federal debt forgiveness program.
   
• If you are a public school teacher or work in law enforcement, you may be entitled to a public service debt forgiveness program that discharges your remaining debt completely after 10 years of monthly payments and 10 years of public sector employment.
   
• If you serve in the military, the Peace Corps, AmeriCorps or Vista, or if you perform certain social services jobs, some of your student loan debt could be forgiven.
   
• If you are unemployed or going through economic hardship, you can often negotiate temporarily lowered payments.

If nothing else, remember that you can deduct up to $2,500 of student loan interest paid during the year from your adjusted gross income for your federal tax return, subject to certain income limits.

Multiple loans?

If you have several loans with different interest rates, follow these steps:

• Pay at least the minimum on each loan.
   
• Pay off the most expensive debt first.
   
• Direct any extra money to the highest interest loan.