How to Make the Transition from Living on a Student Budget to Paying Down College Loans

If, like many American students, you recently graduated from college with a large student loan balance, you now face the challenge of beginning to pay off those loans. While the prospect of repaying your student loan debt may be daunting, there are ways to smooth the transition from living on a student budget to paying down college loans, including the following.

If you don't have a job lined up, your post-graduation job likely will be finding a position. Take a little time off is you can, but then make job hunting your full-time job. At the same time, do not ignore your student loans. Determine how much you owe, when you must start repaying each loan, and what options you have to postpone repayment while you search for a job. Be sure that your lenders know how to contact you and communicate with them sooner rather than later about your situation. Not doing so could have significant negative long-term implications for your financial future.

If you do have a job lined up, make your transition to a post-graduation budget easier by doing the following.

Get a Handle on Your Borrowings. Be sure that your lenders have your new address and determine when you must begin repaying your student loans and how much your monthly payments will be in total.

Make a Budget. If you haven't ever made a detailed budget before, there are worksheets on the internet or books at your local library that will help you with the process. It is as simple as estimating your monthly cash income (after taxes and other deductions from you paycheck) and your monthly cash expenses, including student loan payments. Preparing a budget before you commit to an expensive apartment or buy a new car will help you determine what you realistically can afford.

Keep a Lid on Expenses. Initially continue to live on a student's budget as much as possible for three reasons. First, preparing a budget during a major life transition, such as from college to full-time work, is an uncertain process, since it is largely based on guesswork. Second, it is easier to increase expenses if you find that you have more cash flow than you need than it is to cut expenses if your cash flow turns out to be inadequate. Third, you will be able to pay down your student loans faster. Ways to keep expenses under control include sharing an apartment, buying a used (not new) car, and avoiding credit cards.

Include Savings in Your Budget. Saving may not seem like a priority when you are faced with a mountain of student loans, but it is important to begin to accumulate a rainy-day fund as soon as possible. Financial surprises do happen, from totaled cars to lost jobs, so, if at all possible, begin to tuck a little money away until you have enough to cover several months of expenses.

Make Paying Down Student Loans Quickly a Priority. The longer you take to pay down your student loans, the more they will cost you in interest, so make getting rid of this debt one of your financial goals. Make required payments on all loans, but if you have extra money to pay down principal, put it toward the loans with the highest interest rates first.

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