Student loan debt is on the rise. For many Americans, it’s an unavoidable fact of life, no matter how many hours you work before and during your college years to try to pay your way through. According to Student Loan Hero, total student loan debt in the U.S. currently tops $1.2 trillion—for reference, that’s 62 times the 2016 budget for NASA. Former students are paying an average of $351 every month. In 2017 the average amount of student loans jumped up about $2,000 from the year prior, to $37,172.
So how can you crawl out of the financial hole you found yourself in before you even landed your first real job? Try these tips to minimize the sting of federal student loans.
Pay More Than The Minimum
It might sound impossible to pay more than you’re required to, especially while you’re still working to get your career off the ground. But, if you’re like many Millennials, living on the generosity of your parents and their free housing, you should take advantage of your minimal expenses to start shoveling money at your loans (as well as your savings).
Paying above the minimum will allocate more money directly to the principal of the loan, saving you on interest. Additionally, chipping away at your loans early can leave you “paid ahead” a few months, which can give you a nice little cushion should you find yourself in a bit of a financial hiccup.
Stick With Standard Repayment
Typically, you’ll get to choose your repayment plan: standard, or income-based. With the standard plan, you’ll be paying the same amount every month for the next 10 years, with the allocation of funds slowly tipping more so toward your principal balance and away from interest payments.
With the income-based plan, you’ll pay up to 10% of your income each month, but never more than what your standard-plan payment would be. Although it sounds like a great plan—and depending on your financial situation, it could be the best option for you—in the end you’ll pay much more in interest and over a longer period.
As Credible calculated, a $30,000 loan with a 4% interest rate would end up being $36,448 over the 10-year life of the standard plan. With the income-based plan, a $47,000 annual salary would add up to a total of $37,141 paid over 10 years and 8 months—not too bad. But a $35,000 salary extend the loan over 14 years and 9 months, and cost a total of $41,366. Moral of the story: Pay as much as you can early on.
If you’re struggling to keep up with your various monthly payments for your various loans with their various interest rates, consolidation could be the answer. Combining your loans into one payment will lower your monthly cost, potentially expand your payment options, and let you change to a fixed or variable interest rate.
Depending on your current interest rates, consolidation could also bring some relief: The interest rate of your new loan would be the weighted average of your loans to be consolidated. (But do your research—consolidation is permanent.)
Take Tax Credits
A little silver lining to the thousands you’re paying in student loan interest: It’s completely tax deductible, reducing your tax liability and likely increasing the amount of your refund. However, it has its limits. If you earn more than $80,000 a year, you will not qualify for this deduction.
Tackling the mound of debt that comes with college is intimidating, but if you make a plan and start plugging away at this debt early, you’ll save money (and stress) in the long run.