For many students, loans are as fundamental a part of college as ramen noodles and all-nighters. Just because you need them to fund your education, though, doesn’t mean you should borrow blindly until graduation comes around.
“A lot of times, students make the mistake of not looking until right before they’re going to graduate and are shocked at the amount that they’ve borrowed,” says Nicole Solomon, assistant director of outreach and communication for the financial aid office at West Virginia University.
Take these four steps to minimize your loans, and you’ll be in a much better position to pay them off — and focus on the fun parts of post-college life.
Know how much you need — and take only that.
Your college will decide how much federal loan money to offer you based on the results of your FAFSA. After your school takes into account the need-based aid, grants and scholarships you’re getting, it will offer you loans up to the cost of attendance, Solomon says.
But not all students need to take the full amount of loans they’re eligible for. Maybe you worked over the summer and saved up a few thousand dollars, which wouldn’t be reflected on your FAFSA, and you want to put that toward tuition.
“Just because it’s been disbursed and paid to them, it does not mean they have to keep that loan,” Solomon says.
Most colleges have a financial aid page where you accept your loans online at the beginning of each school year. Before you accept your annual award, look at the balance you’ve accrued so far and think critically about whether you need the full amount. You can accept a partial amount of the loans offered, or accept it all and then return any unneeded portion within 120 days of the disbursement date.
Monitor your loans throughout the year, to keep aware of the debts you’re taking on, and further reduce the amount you need to borrow by cutting costs wherever you can. Rent your textbooks instead of buying them, opt for a cheaper cable package if you live off-campus or rely on public transportation rather than a car if that’s possible.
In other words: “Live like a college student when you’re in college so you’re not living like a college student for the next 10 years after you graduate,” Solomon says.
Pay the interest on your loans while you’re in school.
Private loans and unsubsidized federal loans accrue interest while you’re studying. When you start repaying them, that interest will get capitalized, or added to the principal balance of your loans — so you’ll effectively pay interest on the interest that added up during college.
For instance, an $8,000 loan you took out freshman year at a 3.86% interest rate will accumulate $308.80 in interest each year you’re in school, or $1,235.20 total. When you graduate, you’ll have to pay back $9,235.20, and 3.86% interest will be tacked on to that higher amount. It’ll take longer to reduce your balance than if you’d paid off that $308.80 every year. But since doing so isn’t required, and mail from servicers is easy to ignore, many students don’t take advantage of this option.
“They get a bill for it, they just don’t have to pay it,” says Jefferson Blackburn-Smith, vice president for enrollment management at Otterbein University in Westerville, Ohio.
Every year, your loan servicer or lender will send you a billing statement showing how much interest has accrued on your loans. Log in to the servicer’s online portal to pay it off before it capitalizes, and you’ll keep your loan balance from swelling when you start repayment.
Understand your repayment options before exit counseling.
Even if you’re keeping track of how much money you’ve borrowed, you might not realize how that translates to a monthly payment after graduation. Federal Student Aid’sRepayment Estimator tool allows you to enter your loan balances, interest rates and projected income to see what you’re likely to pay.
You’ll notice you have options beyond standard repayment, which breaks up your loans into 10 years’ worth of fixed monthly payments. You can choose graduated repayment, during which the amount you owe increases every two years, or an income-driven plan likeincome-based repayment (IBR),which caps your monthly payments at 10% of your income and forgives your loans after 20 years if you qualify.
Just knowing about IBR before you’re prompted to pick a repayment plan during your required exit counseling session will keep you from paying more than you need to when you start repayment, Blackburn-Smith says.
“I don’t think families think about IBR yet — it’s not thoroughly understood — and so not as many students look into that at graduation as they should, to understand if this is something that would be meaningful for them.”
Do your best to graduate in four years.
The sooner you graduate from school, the less money you’ll owe. It’s a simple formula, but one that a lot of college students don’t consider when they’re deciding how many credits to take each semester, Blackburn-Smith says.
“I don’t think students think about that, when they’re dropping a class that isn’t conveniently timed for their schedule, what the implication is when they leave school.”
You can graduate in four years by taking a full course load each semester or enrolling in summer classes to catch up on credits, especially if you switched schools or majors. Decide on a course of study by the end of your sophomore year so you don’t have to take additional classes to meet a new major’s requirements.
“It’s something that they just need to be thinking about, because that extra year of debt really is problematic for some students,” Blackburn-Smith says.
Smart student loan repayment starts sooner than you might think. Get ahead of your loans while you’re in school, and you’ll be much less likely to owe more of your precious first paychecks than you thought you would.
This article first appeared at Nerd Wallet.