4 Ways New Grads Can Cut Student Debt

Students graduating from college this spring have a lot to think about, and I'm not talking about pondering their place in the universe. What they have a lot of -- and must think about right away -- are piles and piles of debt. College loans are:

• Bigger Graduates' indebtedness is up 8% from last year and up 47% from a decade ago, according to FinAid.org.
• Tougher to repay The default rate on two-year-old federal college loans rose to 9.6% in 2009 from 7.7%, according to the Department of Education.
• Often not worth it Some 60% of college grads are employed in jobs that do not require a degree; graduates fill 20% of new waiter and waitress positions.

None of this is especially new. These trends have been in place at least since the onset of the Great Recession, and in a bright spot the job market for new grads is actually looking up. But until the economy starts minting more and better jobs many graduates will struggle with their loans. The average grad owes $24,000, and looking only at students who have loans the average balance is probably double that.

For ideas on how to minimize college debt before you even start, look here. For practical tips on how to manage your college debt look here. My advice:

• Don't defer payments A new grad can defer payments for up to six months. But with private loans the interest will accrue and set you back that much further. Start paying down loans immediately.
• Pay the interest If you are unable to start making regular payments directly out of school, at least make the interest payments during the deferral period so that you do not get further behind. (Ideally, you started making interest payments even before you graduated.)
• Choose the right payment plan New grads have many options, ranging from a standard fixed payment schedule to one based on income to one that starts small and increases each year. Go with the plan where the monthly nut pushes you to the edge of your comfort zone.
• Apply for loan forgiveness By volunteering with AmeriCorps, Peace Corp. or VISTA you may qualify to have some or all of your college debt wiped away. Other options include spending time in the military, teaching, and doing social work. Look here for more information.

Photo courtesy Flickr user alancleaver
See my series on student debt:

• Part One: How One College Turned the Student-Debt Tide
• Part Two: How College Debt Limits Career Options
• Part Three: 3 Surprising Ways Debt Diminishes Campus Life
• Part Four: 12 Horrible College Money Mistakes

More on MoneyWatch:
· 7 Tools for New Grads
· The Best Career Paths for Teens
· How to Get a Big Raise

Dan Kadlec

Daniel J. Kadlec is an author and journalist whose work appears regularly in Time and Money magazines. He is the former editor of Time’s Generations section, which was written and edited for boomers. Kadlec came to Time from USA Today, where he was the creator and author of the daily column Street Talk, which anchored the newspaper's business coverage. He has co-written three books, including, most recently, With Purpose: Going from Success to Significance in Work and Life. He has won a New York Press Club award and a National Headliner Award for columns on the economy and investing.

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