Understanding Student Loan Debt

Whether you're about to embark on your college journey or have just graduated, navigating this exciting phase of life can be both thrilling and daunting. Here’s a guide to help you make the most of your college experience or transition smoothly into the post-college world.
For Incoming College Students

When considering your career aspirations, try to align your educational path with your goals. Those planning to go into healthcare, technology, business, education, or engineering, a four-year degree is most likely essential for your success. However, if your interests lie in the skilled trades, like HVAC, plumbing, welding, construction, or electrical work, attending a community or technical college might be ideal to teach you the necessary skills. Kolten Pingeon, Portfolio Banker at Coulee Bank, says, “If you are unsure of what you want to study in college, take your general education courses at a community college.” It will save you money in the long run.

Seek Out an Affordable College and Look for Scholarships

Rachel Munger, PR Manager at Coulee Bank, says, “My biggest advice for someone entering college is to find an affordable college or seek out scholarship money to help mitigate the cost of a more expensive institution.” She says when she was in high school, there were many opportunities to apply for scholarships awarded by local organizations by writing essays. Some scholarships may have been around $1,000. It may not seem like a lot, but it’s money you don’t have to repay upon graduation.

Another important tip is understanding your student loans. There are federal loans and private loans. Federal loans are funded by the federal government. These types of loans have more repayment flexibility and lower interest rates compared to private loans. Private loans are offered by Sallie Mae, SoFi, and ELFI, and other organizations offering loans. Private loans may have higher interest rates with less flexible repayment options.

With federal loans, students often encounter unsubsidized and subsidized loans, both part of the Federal Direct Student Loan Program. Subsidized loans are need-based and available only to undergraduates who demonstrate financial need. A key advantage is that the government covers the interest while the student is in school at least half-time, during a six-month grace period post-graduation, and during deferments, making them more cost-effective. In contrast, unsubsidized loans are available to both undergraduates and graduates without regard to financial need, but interest starts accruing immediately upon disbursement. Students are responsible for all interest payments, potentially increasing the loan’s total cost if payments are deferred. Understanding these differences is crucial for students to make informed decisions about financing their education.

Munger says, “There are different campus leadership positions that can help reduce the cost of school, such as being a Resident Assistant or obtaining a position in Student Government.” These opportunities reduce the cost of your schooling and offer professional experience that looks great on your resume!

For Graduating College Students

If you are a recent graduate, it is highly recommended to start paying your loans as soon as possible. First, contact your student loan servicer, which is responsible for billing and managing your loans. The Federal Student Aid office is where you can find this information at studentaid.gov. Determine how many loans you have and the interest rates for each one of them. Pingeon recommends consolidating your student loans, so you only have to make one payment. “This is beneficial because if some of your loans have higher interest rates, you may be able to consolidate them to a lower interest rate. This saves money in the long run,” states Pingeon. Do some research on loan forgiveness. If you qualify, certain programs will forgive loans.

Start Paying Off Accrued Debt Immediately

Once you understand the outstanding loans accrued, start paying them off immediately. This will help you save money. The longer you have these loans, the more interest is accrued, which costs you more money.

“My husband and I used the snowball method to pay down debt,” explains Munger. To minimize the amount of interest paid on loans, they tackled loans with the highest interest rates first and then moved on to the loans with the lowest interest rates. In total, they had 16 different loans totaling $50,000. She said they lived significantly below their means and paid $2,000 per month on the loans. She recommends a side hustle for extra cash and to use any bonuses you receive at your job to put towards the loans. They paid off their debt in under two years. “I am so happy we did it! It’s freed up money in our budget for other things, and it reduced my stress around the loans!”

While it may not be feasible to pay off your student loan debt as quickly as Munger and her husband, you can still be responsible. Pingeon says, “Set up a monthly budget to see your earnings and all expenditures.” In doing so, you will see how much extra money you have each month to pay towards the loans. As you are setting up your budget, consider starting an emergency fund to help if you have car repairs, medical bills, or a sudden job loss.

By understanding these aspects of your student loans, you can better manage your debt and make informed decisions about your financial future.