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Smart Ways to Pay Back Your Student Loan

What comes after graduation day? The job of repaying the cost of college. That often involves hard choices, but with a solid strategy you can tackle your debts without jeopardizing your future.

TWENTY MILLION COLLEGE STUDENTS started their freshman year last fall—and seven in 10 are likely to leave with debt. They’ll have lots of company: As of June 2017, Americans collectively owe $1.5 trillion in student loan debt, making it the second-largest source of consumer debt after mortgage loans, according to Merrill Lynch’s Chief Investment Office.

How much individual graduates owe is partially dependent upon where they go to school. The Institute for College Access and Success surveyed more than 1,000 public and nonprofit four-year colleges and found that in states like Utah, for instance, the average student loan debt for the class of 2016 was only $19,975, while in New Hampshire it was $36,367.

Finding the Right Repayment Plan for You

There are a number of repayment options available to graduates with federal student loan debt. They include a 10-year repayment plan, a graduated repayment plan with payments that start low and steadily increase, and various income-based plans. Those who work for the government or in the nonprofit sector may also be eligible for the Public Service Loan Forgiveness Program. If you owe private loans, the issuing bank sets the repayment terms.

“Lower monthly payments and more time to pay off your loan may sound tempting, but you’re likely to pay more in interest over the life of the loan.” —Jean Kim-Wall, director and wealth strategist at Merrill Lynch’s Strategic Wealth Advisory Group

“Deciding which repayment plan is right for you requires hard choices and a solid strategy,” says Jean Kim-Wall, director and wealth strategist at the Strategic Wealth Advisory Group at Merrill Lynch. “For instance, having lower monthly payments and more time to pay off your loan may sound tempting, but you’re likely to pay more in interest over the life of the loan.” For that reason, she says, “even if you’re eligible for an income-driven plan with a lower monthly payment, it may not be your best choice. If you can afford to pay more, do.”

Here are three more tips from Kim-Wall.

  • First, "try to pay the interest on your loans while you’re in school to prevent your principal from growing during your college years."
  • Also, “pay back the loan that has the highest interest rate first.”
  • Finally, consistency is key. “Regular payments show future lenders that you have discipline.”


3 Questions to Ask Your Advisor

  1. What type of repayment plans work best for my current financial strategy?
  2. How can I integrate student loan payments into my budget?
  3. What are my options for consolidating my student loan debt?

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