Student loan repayment calculator

Loan repayment 101 for new college grads

Question: I graduated from college this spring, and finally landed a job. How do I start paying off my student loan debt?

Answer: College students are graduating deeper in debt each year. According to student loan firm Nellie Mae Corp., the median student loan debt in 2002 was $16,500, up 74 percent from $9,500 in 1997, and the median credit card balance was $1,600. With college tuition rising faster than inflation and credit card companies increasingly targeting students, those figures are climbing.

But there's hope. Paying off debt takes some self-control and a little math -- calculations that even liberal arts majors can handle.

The first step: Outline your expenses.

Diane Giarratano, director of education at credit counseling agency Novadebt, recommends recording your spending for four weeks. "Most people are so surprised what they spend," Giarratano said.

Whether you use expense-tracking software or a simple calculator, see where you can cut corners.

Living alone? Find roommates. Stopping at Starbuck's each morning? Buy a coffee maker and thermos instead. Recent grads "have been in the cocoon of college," said Everyone's Money Book author Jordan E. Goodman, and must examine every daily purchase.

Once you decide how much you can spend each month on debt repayment, consider loan consolidation. Grads with overwhelming, numerous debts may want to consolidate to lower their interest rate. But before you do, consult a credit counseling agency -- preferably one that's nonprofit and doesn't charge high fees.

Consolidation isn't for everyone. You could end up extending your repayment up to 30 years, said Martha Holler of student loan provider Sallie Mae, and it's hard to reconsolidate or unconsolidate later.

For example, if you've consolidated your loans and later go back to school, you forfeit the chance colleges and universities give you to defer student loan repayment until you're back in the work force.

If you decide against consolidation, start paying off your debts in order -- high-interest debts quickly and low-interest debts gradually. Credit card debt should be first, as many credit cards charge about 18 percent interest.

Once you develop clean credit and controlled spending habits, a trick to try is "credit card surfing," Goodman said. That's using a low-interest credit card to pay off high-interest credit card debt.

College loans, on the other hand, charge about 3 percent interest and are flexible, allowing for deferment if you lose your job or return to school. Plus, loan providers offer many repayment options.

The most common plan requires level payments for 10 years, Holler said, but some grads choose longer or shorter plans, or ones with gradually increasing payments to reflect a growing salary. No matter what you choose, stay in constant communication with your provider and be honest about your budget.

Once your debt repayment is mapped out, you can breathe easier. But don't forget, you should still be saving -- ideally, about 10 percent of your income, Goodman said. Keep an emergency fund of at least one to two months' salary in the bank or a money market fund, and start a 401(k) retirement account or Roth IRA as soon as possible.

"You have a wonderful advantage on your side, which is time," Goodman said. "Even if it's not earning much, you'll have many years of compounding."

Meanwhile, pay your bills on time to maintain a good credit record. And cut back on those daily lattes.