With the student loan restart kicking off in September and ultimately leading to first payments being due in October, it seems as good a time as any to go through some simple information to consider when you sit down to tackle your own student loans.
First, to give you an idea of what the current climate is with student loans.
According to the Motley Fool, there are roughly 43.5 million Americans that hold student loan debt. With that, the average borrower has $37,338 in debt and the average monthly payment made is $337. The estimate of total student loan debt is $1.78 trillion.
Now, let’s get into the info to navigate your student loans.
1. Understand your loans.
While seemingly a simple tip, there are several factors that go into your student loans.
- Loan Details: Know the balance, interest rate, and term of each loan. This will help in assessing your situation and creating your plan to pay them down.
- Loan Types: Identifying whether your loans are federal or private is a big consideration. Typically, federal loans will feature more favorable repayment options and forgiveness programs if need be. While private loans may not be as friendly to borrowers.
- Loan Servicer: Know who your servicer is and know all of the ins and outs of the website you access your loans through. It will greatly reduce any stress that comes from even trying to navigate to your loans.
2. Choosing the right repayment plan.
This will be where you want to spend the most time. Understanding your options and picking something that works for you will make the entire process much easier.
- Standard plan: Usually this option is a 10-year repayment period. While this does result in a higher monthly payment, it is also typically the fastest repayment method.
- Income-driven repayment plan: Basing your monthly payment on a percentage of your income is where most borrowers find themselves most comfortable. This will base your payment on a schedule that may be longer than the 10-year plan but if it is easier month to month then it is potentially a great option to move forward with.
- Extended or Graduated plans: These plans give you a lower monthly payment but because of that will lengthen the time you have your loan and result in more interest accumulated over that time.
3. Make extra payments.
While paying student loans isn’t fun for anybody we all know it is necessary. Now paying extra on those loans is even less fun, but it can greatly improve your situation in the long run. Paying extra whenever possible can help you pay down the principal much faster and in turn greatly reduce the amount of time you are paying your loans back and reduce the amount of interest you pay over time. Just make sure you instruct your loan servicer to apply that extra payment directly to your principal if possible.
4. Refinancing or Consolidation.
This may not be a needed step for everyone, but nonetheless is important to tackle.
- Refinancing: This can help if you are able to take out a new loan with better terms (interest rate) to pay off your existing loans. Keep in mind you don’t want to lose any potential benefits of having your current loans if you refinance.
- Federal loan consolidation: Combining several federal loans into a single loan may help simplify your payment. However, this may change the interest rate or life of loan so consider these when you think about doing so.
5. Stay informed and take advantage of programs.
This is another that may not impact everyone but for those it does it is incredibly important to stay up-to-date with.
- Forgiveness programs: Programs like Public Service Loan Forgiveness (PSLF) can forgive the remaining balance of your loans after a certain amount of payments are made. Make sure if any potential forgiveness programs apply to you that you are aware of them and are taking advantage of them.
- Tax deductions: You may be able to deduct the interest you pay on student loans from your taxable income. Make sure you contact your tax advisor with any further questions on this.
- Stay in touch with your loan servicer: Keep them up to date on any address or contact information changes to ensure you aren’t missing any information. Additionally, reach out to them if you are facing a changing financial situation as depending on the situation they could have different programs or potential solutions if needed.