Diplomas weren’t the only things the class of 2015 took with them when they graduated from college last year. For nearly seven in 10 seniors, graduation meant facing their student debt, averaging more than $30,000 each for students with loans.
That’s a 4 percent increase over the average debt load among 2014 graduates, according to recently released data from the Institute for College Access and Success. More than 80 percent of that debt comes from federal loans.
Related: 15 States With the Most Student Debt
If you’re staring at a big pile of student debt, follow these steps to make sure you’re being smart about your loan payments:
1. Know the scope of your debt.
Despite financial aid rules around disclosure, many college students and new grads aren’t aware of exactly how much they’ve borrowed to pay for school. A 2014 study by the Brookings Institute found that half of all first-year college students underestimate how much student debt they have, and 28 percent of students with federal loans thought that they didn’t have any federal debt.
While lenders will likely start to bill you as soon as your loans come due, if like many new grads you’ve moved recently, you might need to proactively make sure they have your current address. Enter your info into the National Student Loan Data System to see exactly how much you owe in federal loans. To find out your private loan debt, request a free credit report from annualcreditreport.com (a good idea to do periodically anyway), and call any listed creditors to ask them for an account statement.
“The most important thing is to figure out how much you owe, to whom you owe it, and what the terms of your loans are,” says Betsy Mayotte, director of regulatory compliance at the American Student Association.
2. Consider options to lower your payments.
If you can afford the payments, the standard, 10-year repayment plan for federal loans is the best plan, since you’ll pay less interest than with most of the other plans, and you’ll eliminate the debt as quickly as possible. If the payments are too high, however, there are seven other repayment options, which will stretch out your payments for as long as 25 years but will lower the monthly bill. Several of the plans will eliminate the remaining balance at the end of the repayment period as long as you never miss any payments. “There are some good options there for students who don’t have a full-time job, or who are doing some great public service work that doesn’t pay a lot,” says Lyssa Thaden, Access Group’s director of financial education.
Enter your loan details into the online calculator at Gradible to see which option might be best for you. If you start to make more money later, you can always make larger principal payments to eliminate your debt more quickly.
Related: How You Can Escape Student Loan Repayment
There are several startups that will help you consolidate and refinance student loans at a lower rate. This isn’t always a great move for federal loans, since you’ll lose the option to switch into a flexible repayment program or eligibility for debt forgiveness. Refinancing private loans may make sense, however, but new grads may not yet have the credit history to qualify for the best refinancing rates.
3. See whether your employer can help.
A growing number of employers are now answering the call of workers who want assistance in repaying their loans. The career-networking site Beyond found that nearly 90 percent of job seekers would like to see companies offering student loan repayment as part of their benefit package, and more than 80 percent said they would be more willing to stay with a company that offered it.
Staples recently announced it was jumping on this bandwagon, joining a number of high-profile employers such as Fidelity and PwC. The number of employers who offer this benefit is still relatively small (3 percent, according to the Society of Human Resource Management), but interest in the benefit is rapidly increasing, so it’s worth asking your HR department if they have a program or are considering one.
4. Don’t ignore other important financial goals.
While it may be tempting to throw any additional money toward paying down your student loans as quickly as possible, you shouldn’t be paying more than the minimum payments if you haven’t got the rest of your financial house in order. Before focusing on making extra student loan payments, make sure that you’ve got at least an emergency fund with three months’ worth of expenses; that you’re contributing enough toward your retirement account to get an employer match; and that you’re not carrying high-interest credit card debt.
Related: 11 Wild Things Graduates Would Do to Erase Their Student Debt
A recent HelloWallet analysis found that prioritizing student loan payments over retirement savings could leave consumers with a significantly lower net worth in retirement.
5. Make a repayment plan.
As you get a few years into your career and your income rises, you may find that you can start putting extra cash toward your student loan payments. There is no pre-payment penalty for federal loans or for most private loans, but be sure to give your lender written notice that you want the extra money to go toward the loan principle. “Any extra money you pay, either every month or every now and then, will lower the amount of interest that you’ll pay over the life of the loan,” says Jennifer Wang, director of the Washington, D.C., office of TICAS.
First, focus on any private student loans, since they tend to have higher interest rates and less flexible repayment terms. Then, put all your extra money toward the highest-interest rate loan first. Once that loan is paid off, direct that extra money along with the principal toward the next-highest interest loan.