One thing that most college grads have in common is student loans, as about 70% of graduates have them. The average student loan debt is over $37,000, which has been steadily increasing.
Carl Carlson, CEO of Carlson Financial said for many young grads, they have been taking out student loans as they go and might not know the total they have outstanding, or what that will translate to as a monthly payment.
It’s important to be proactive in finding the details of loans: who the lenders are, whether they are federal or private, the balances, repayment options, etc. Setting up online access with each lender can help in making this information readily accessible.
When talking about consolidation, Carlson said the real advantage to consolidating is simplicity. Many students will take out multiple loans per year, as tuition is due, and they may have a combination of federal and private student loans. Consolidating your federal loans together and consolidating the private loans together might make your life easier, but he would not recommend consolidating them all together, as federal loans have many benefits that private loans do not.
That might be something to consider down the road when the borrower is more financially stable, Carlson added.
Federal loans have more flexible repayment plans. For example, the standard repayment might be a level, 10 year plan, but one could change that to an Income-Driven Repayment plan, or a Pay-As-You-Earn plan, which flex with one’s income. Federal loans can also accommodate for unemployment or other unexpected financial challenges.
Starting out, Carlson suggests paying the minimum until the borrower is financially stable and has an adequate amount saved in case of an emergency. After that, it depends on other near-term goals or expenses they might need their discretionary income for. If the most looming goal is paying off these student loans, put anything extra toward the highest interest rate loan.
Carlson added to always communicate with your lender. Whether you are just moving and need to update your address, or you find your payment to be too high, talk to your lender right away. Ignoring the loans will only hurt you down the road!