Tuition fees continue to rise. As borrowers wonder how to repay their student loans, it’s a good idea to put a plan in place as soon as possible to pay off that debt, otherwise it could spiral out of control and affect your long-term financial goals. Whoever said, “You can’t put a price on a good education” probably didn’t have to deal with student loans.
The global coronavirus pandemic has caused major disruptions to lives, jobs, families and finances. Many things are going back to “normal,” including the fact that borrowers will have to start repaying their student loans in May, after the expiration of a temporary forbearance period for most federal student loans that began in March. 2020.
If you have federal student loans, use these tips to prepare now for the resumption — or start — of student loan repayments, knowing that your repayment plan should start with a strategy. Here are nine tips to help you repay federal and other student loans.
1. Understand what types of loans you have
The first step is to get organized. If you’re like many student borrowers, you can have a combination of federal and private student loans. The features and benefits of each may be different, and federal loans may or may not be subsidized and therefore affect how much interest you have to pay and when.
If you’re not sure what type of federal student loan you have, log on to the United States Department of Education website. National Student Loan Data System, where you can get this information. For private student loans, you can get details from the bank or lender you got the loan from.
When it comes to paying off your student loans, knowledge is power.
2. Be careful with private loans
For help as you prepare to start repaying private student loans, contacting the lender directly can help you understand their specific policies. Each private lender has their own policy regarding loan terms, payment assistance and how they will attempt to recover from you if payments are late.
Some lenders allow borrowers to suspend payments due to hardship, but interest and penalty charges continue to accrue. Since this can increase the total balance of a loan over time, consider this option carefully and how it will affect your overall financial situation.
3. Find out how much you owe
While you can’t afford to skip your student loan payments, you also need to make sure the monthly payment amounts are sustainable given your other financial obligations.
After determining the total you owe in student loans, figure out how much you can afford to pay each month. Once your calculations of all your financial obligations are complete, you can better understand how much you can reasonably afford to pay each month.
4. Be proactive and contact your student loan officer
Whether you have a federal or private student loan, be proactive when trying to get your debt under control. Your lender — or Federal Student Loans Manager — manages the loan account, receives your payment, and in most cases is the same one who issued the loan funds to you when you were in school.
You can have multiple student loan managers if you have more than one federal student loan. There have been many recent changes to the Federal Student Loans Service, so be sure to find out who your current officers are. You should receive written communications from them, including billing statements and other notices.
5. Set a repayment deadline
If you want to make a long-term plan, set a deadline for student loan repayment. If you’ve faced significant financial setbacks, you may be able to reduce your payments and make them even more manageable.
You may qualify for more flexible assistance if you start with monthly repayments that include the minimum and maximum repayment amounts established for the Department of Education’s Pay As You Earn plans.
6. Consider all repayment options
Due to past confusion and complexity regarding eligibility, the Department of Education recently announced an overhaul of the Civil Service Loan Forgiveness Scheme.
Recent changes clear up some of the previous confusion and limitations with eligibility regarding loan type, repayment options, and loan repayment history. These changes improve the odds of reducing or eliminating student loan balances for millions of federal, state, and municipal workers, as well as educators, charity workers, nonprofit hospital workers, and others.
If your student loans are from private lenders or a bank, you may have several repayment plan options, but some of these options require large up-front payments. Alternatively, if you work with an educational credit counseling service, you may have an income-based repayment plan.
Under an IBR plan, your monthly payment can be spread over 15 years and can be made in equal installments every two weeks. Payments are capped at 10% of your Discretionary Income, which is basically any income you receive that you don’t have to repay.
There are more details regarding the IBR refund. The key is to understand that you have options.
7. Prioritize student loan repayment
Part of your repayment plan should focus on your higher interest rate loans first. These are often more expensive and have a greater impact on your budget. Focusing on them first will save you the most money in the long run because paying them off faster will help you save interest charges over time.
You can start by paying extra on the student loan with the highest interest rate while paying the minimum amounts due on the others. Once this highest interest loan is paid off, add the total amount you were paying on this loan to the amount you are paying on the next highest interest student loan on your list, continuing until all are paid off.
Known as the “avalanche” method of liquidating consumer debt, this strategy has also worked well for many former students in their efforts to pay off their student loans.
8. Manage Student Loan Interest
You may be able to lower your interest rate by negotiating with your lender, changing your payment amount, or refinancing a student loan.
In some situations, borrowers will need to consolidate their federal student loans to qualify for certain programs or loan forgiveness. Consolidation replaces multiple student loans with one loan. By doing so, you may be able to take advantage of a lower interest rate or a shorter repayment term.
9. Examine your situation and consider affordability
Your financial situation may have changed over time and may change during student loan repayment. Take the time to get a clear picture of your monthly income and expenses, and take stock of your other debts — including credit cards — to understand what monthly loan payment amount is realistic for you.
This is particularly important for private student loans, which generally have stricter repayment terms and less flexibility for borrowers than federal student loans. Having a clear idea of your current situation will allow you to focus on your long-term repayment goals.
The quest to manage your student debt shouldn’t end there. Follow the Student Loan Ranger blog, which offers expert advice on all aspects of student loans.