Personal Finance

How to Pay College Debt and Avoid a FICO Hangover

It’s that time of year again — colleges across the country have unleashed a new wave of graduates to cut their teeth in the real world.

Jamie Grill | Iconica | Getty Images

But as student loan debt levels continue their rapid ascent, today’s grads face tasks more daunting than crafting the perfect resume or nailing an appropriate business-casual look.

According to a recently released study by the Federal Reserve Bank of New York, the average outstanding student loanbalance per borrower has edged above $23,000 — a daunting figure on a starter salary.

So what exactly should you be doing to protect your FICO score — a critical measure that many lenders use to assess credit risk — while also paying down student debt?

We scoured the web in search of sites that can provide useful information for loan holders. And we also went to 'the source,' FICO's Anthony Sprauve, who manages consumer and media relations for, to assemble tips for today’s borrowers.

Get Organized

The first step to paying student loans is to know the who, what, when and where of your payment schedule. Keep detailed records of the balance, repayment status, grace period and lender contact information for each loan, advises the Project on Student Debt website.

The National Student Loan Data Systemprovides access to federal student loan information, along with a terms glossary and extensive frequently asked questions page. If you do not see a loan listed, it is probably a private one.

“For those, try to find a recent billing statement and/or the original paperwork that you signed,” the project’s website said. “Contact your school if you can't locate any records.”

Pay Your Bills on Time

FICO scores do not emphasize how deeply into student loan debt you went for that diploma, but they are concerned with how you repay the loans. Very concerned — in fact, payment history makes up the largest chunk of an individual’s FICO score at 35 percent.

“Paying your student loan bills on time is the most important thing anyone can do (along with) managing your other debt,” Sprauve said.

Stay in Touch With Your Lender

If you have ever received past residents’ mail at your own home, you probably realize the importance of this tip. Lenders will not know whether you have switched addresses until you shoot them a “we’ve moved!” note. This oversight can easily end up costing serious cash and leave a lender seriously annoyed.

Defer — Don’t Default

Maybe that dream job doesn’t exactly come with a dream salary. It happens. Starter salaries and high rent can be a tricky combination for paying your student loans on time.

Rather than become delinquent or default on your loans, reach out to your lender to request a deferment, which will be granted in certain specific situations, such as unemployment , economic hardship or reenrollment in school. During a deferral, interest will not accrue for subsidized loans but will on unsubsidized loans. The Department of Education shares additional information here.

Follow Katie Little on Twitter @katie_little_.

More Tips Ahead

Pay Highest Interest Rates First

Tooga | Getty Images

Not all student loans are created equal. If you have extra cash, chip away at the loans with the highest rates first, whether they are student loans or credit-card ones, while also paying the lower-rate ones as dictated by your payment schedule.

Credit-Card Debt Matters More

Having and using a credit card is not necessarily a bad move. Racking up large debts without paying them off each month is where borrowers get into trouble. Sprauve emphasized that credit-card debt carries more weight positively and negatively than student loan debt. Therefore, it often makes more sense to dedicate extra cash for additional payments on credit-card debt rather than student debt.

“Credit card debt is a bigger factor in your credit score than student loan debt so to take a grad gift and pay down your credit-card debt could potentially help your score,” Sprauve said.

Open New Credit Only When Necessary

New grads can feel like they’ve won some sort of credit-card popularity contest since companies often throw cards at college students and recent grads in the hopes of scoring life-long customers.

While consumers should work hard to establish good credit and should open a line of credit, they need to choose the sources carefully, Sprauve said.

“If you’re in Banana Republic or Anthropologie, you’re buying some stuff and they offer you the ability to save 10 percent or 15 percent by opening one of their cards, it’s not prudent to do that because it will hurt your credit score,” he said.

For the Lucky Ones — Get Loans Forgiven

If you work in certain fields or for certain types of employers, you may be able to hit the student loan jackpot — loan forgiveness. Among the groups that qualify are volunteers for AmeriCorps and the Peace Corps in addition to borrowers who serve in the military or in public interest or non-profit positions. For more extensive information about those who qualify, check out’s website.

Follow Katie Little on Twitter @katie_little_.