When you’re in school, graduation seems so far away. Student loan repayment is farthest from your mind. However, it’s important to understand your student loan repayment options because, after graduation, the reality of paying back loans can quickly sink in. It takes Americans an average of 20 years to pay off their student loans. If you get organized and check in on your loans this year, you may be able to pay them off sooner! Learn about student loan forbearance, paying extra, refinancing, and more below.
Start Here: Organize Your Student Loans
The first piece of advice we ever give for paying back loans is to get organized. Getting organized involves setting up a spreadsheet or grabbing an app for your student loans.
Before you come up with a plan to pay them off, it’s important you know what you’re setting your sights on. Important information to gather includes:
- Who is the lender?
- How much do you owe?
- What are your current monthly payments?
- What interest rate are you paying?
- What is your expected pay-off date?
Having this information in hand will make it easier to keep track of your progress and make decisions. You may be able to get lower interest rates by refinancing. Or by paying more each month, you can pay off your loans faster. Knowing exactly what your debt looks like will let you compare offers and decisions later on.
Student Loan Repayment Options
After you’ve gathered your loan information, it’s time to come up with a plan to start paying them back! First, if you’re able to set up automatic payments from your checking account, you can sometimes get a discount. Automated payments also help when you’re creating a budget for yourself.
You’ll know exactly how much money you need to set aside each month. One of the most important reasons people fail with their budget is because of unexpected expenses. It can be hard to stay on track when you don’t know what’s coming!
Option: Paying Extra Each Month
In conjunction with automated payments, you can also try to pay extra. It seems like an obvious tip. But simply adding a few extra dollars to your monthly payment can make a big difference. For example, if you have $20,000 left in your loans, an interest rate of 7%, and monthly payments of $400, an extra $20 per month goes a long way. You can shave off nearly half a year off your repayment time.
Student Loan Tip: Adding a few extra dollars to your monthly payment can make a big difference.
Option: Refinancing Your Student Loans
Millions of Americans qualify for student loan refinancing and don’t even know. The interest rate you got while you were in school likely wasn’t the best. You may have been pressured as an undergrad to take an unfavorable loan because you didn’t know better. Or maybe interest rates have dropped since you took out your initial loan.
By refinancing your loan, you can lock in a new interest rate. This can shave thousands of dollars or years off your repayment terms. Checking your rates won’t affect your credit score either.
To assist people with student loan debt, we built a student loan repayment calculator. It takes a deep dive into your student loans. We’ll show you how long it’ll take for you to pay off your loans at your current rate. Compare interest rates and see how paying extra each month can make a big difference. Get fast facts about how much you can save by paying your loans off sooner. Check it out and let us know what you think in the comments below.
Option: Student Loan Forgiveness Programs
There are any number of forgiveness programs available for student loans. Loan forgiveness is typically tied to your employment status. Health care workers, public servants, and more could be eligible for forgiveness programs. Check out this full list of forgiveness options for your student loans.
Student Loan Repayment Challenges
Paying off student loans isn’t easy! And sometimes there are bumps in the road that make it harder to make a payment every month. An unexpected expense may surprise you with your car! Or maybe you forgot about your daughter’s ballet class tuition. Whatever the case, missing a payment on your student loans isn’t good. Not only can it affect your credit. But lenders may also charge you late fees and increase your interest rate on missed payments.
If you think you’re unable to make a payment, don’t panic! Contact your lender and see what arrangement you can come to. Lenders also want to get repaid. So it’s in their best interest to work with you to get your loan payments on track. If you’re not sure who your lender is, you can call the Federal Student Aid’s loan service hotline.
They may be able to waive a month or two to help you get back on your feet. Or they could offer to lower your monthly payment and extend your due date. Loan forbearance and deferment are both options depending on the type of loan you have as well.
The federal government also offers an income driven repayment plan. This repayment plan adjusts your monthly payments based on how much you earn. This can be especially helpful if you’re struggling to make monthly payments.
On average, the income driven repayment plans offer to reduce your loans to about 10% of your discretionary income. The government defines discretionary income as the difference between your annual income and 1.5x the poverty level. The current poverty level is about $13,000 for a single person. And about an extra $4,500 for each extra person in your household. So if you earn $40,000 per year and are single, 150% of the poverty limit is $19,500. The federal government would consider the $20,500 difference as your discretionary income. 10% of this is $2,050 per year, or about $170 per month.
These refinancing options are only available for federal student loans.
Note: Do you need a deeper dive into student loan repayment options? Then we recommend your checking out Edukate’s Student Loan Maintenance site. This resource hub is your roadmap to managing and servicing your student loan to ensure you pay off your debt faster and possibly save some money in the process.
2021 is the perfect time to check in on your student loans. Get organized and come up with a better plan to pay them down. Even small changes to your loans can shave years off your repayment time. If we missed anything our you have a comment to share, feel free to use the comments below. We’d love to hear from you.