By Eric Bell
Recently, I graduated with an MBA from Georgetown University and $130,000 in student loan debt. It's a lot of money, I know. But my education is a worthwhile investment from my perspective, and to get a good education these days costs a good chunk of change. The bigger question is what to do now that I've graduated and have to start repaying my loans in a few months after my grace period ends. Here's my plan of attack.
Compile My Student Loan Information
First, I've gathered all of my student loan information to determine my total debt and interest outstanding. By my calculations, I have 13 federal student loans totaling $130,000 with an average interest rate of 7.5 percent. To figure this out, I visited that National Student Loan Data System and created a free student loan worksheet that calculates my average interest rate. Why does my average interest rate matter? Because if I decide to refinance and consolidate my student loans into one loan with the Department of Education, they use the average interest rate to determine the interest rate on my consolidated loan.
Weigh My Student Loan Repayment Options
Next, I have to weigh my repayment options. As an entrepreneur and freelance consultant, my income varies on a monthly basis which isn't ideal from a lender's perspective. Lenders like to see steady, consistent income. The federal government is much more lenient than private lenders, and has several programs available that allow graduates to increase their payments as they earn more income over time. One "pay-as-you-earn" program that is getting a lot of attention lately is the new Income-Based Repayment ("IBR") plan. It caps students payments at 15 percent of their adjusted gross income ("AGI"). While that does help borrowers in the short-term, it can lead to much higher interest costs on loans over time. Other options are the standard repayment plan that would allow me to pay a fixed amount each month for a set period of time, the graduated repayment plan which increases payments later on in the life of the loan and the income-contingent repayment plan which is similar to IBR.
Consolidate My Student Loans
No matter my choice for repayment, I'm planning to refinance and consolidate my student loans before I start repaying. Why? Because it wraps all 13 of my student loans into one, limits the paperwork and fixes my interest rate. Until recently, the only viable option I had for doing this was through the Department of Education's Direct Consolidation Loan program. Then a new player entered the market that offers lower interest rates, flexible repayment options and access to a community of supporters as I tackle my debt. By refinancing my student loan debt with them, I'll end up saving nearly $23k and don't have to pay a dime to do it.
Repay My Student Loan Debt
Six months after graduation when my grace period ends, I have to begin repaying my student loan debt. While it's not fun, it's what you have to do when you borrow money. I've set aside enough money for several months of student loan payments already, but plan on aggressively paying down my debts over time. When I used to get bonuses, I'd put them into savings. Now, I'm going to apply them toward my student loan debt. Consider how hard it is to find an investment that pays 6 percent, it's a better financial decision for me right now to get my student debt off my net worth statement as fast as possible.
This story is an Op/Ed contribution to Credit.com and does not represent the views of the company or its affiliates. This article originally appeared on Credit.com. Eric Bell is is the Founder and Editor-in-Chief of YoBucko.com--a personal finance website that helps 20-somethings learn to save money, pay off debt and invest for the future.