The good news – you have a college education. The not so good news – at some point you likely have to deal with repaying student loans. Whether you have recently graduated or are resuming repayments after a break, the whole issue can be overwhelming.
Understanding your options is the most important step towards taking control of your financial future. Start by figuring out if your loans are federal, private or a mix of both.
Federal loans: these funds are issued by the U.S. Department of Education. They have the most flexible repayment options, such as potential forgiveness programs and income-driven plan. To find a complete record of your federal loans, log into your account at StudentAid.gov.
Private loans: these funds are issued by banks, credit unions, or other financial institutions. They have fewer built-in repayment options and benefits. To discuss your options, you will need to contact your lender.
For federal student loans, there are two kinds of repayment plans:
Fixed plans:
• Standard Repayment Plan: This is the default option. You pay off the loan in 10 years with a fixed monthly payment. Since it results in the lowest total interest paid over time, the monthly payments can be higher.
• Graduated Repayment Plan: Payments start low and gradually rise, typically every two years, until loans are paid off within 10 years. This is the ideal option for those who expect their income to increase over time.
• Extended Repayment Plan: This plan is for borrowers with a higher loan balance (over $30,000), extending the repayment period to up to 25 years. You can choose a fixed or graduated payment, but you will pay more interest over the life of the loan.
Income-driven repayment (IDR) plans:
These plans base your monthly payments on your income and family size. While your payments can be significantly lower, the repayment time can be longer, which can lead to more interest over time. After 20 or 25 years of payments (depending on the plan), any remaining balance may be forgiven.
• SAVE Plan (Saving on a Valuable Education): This plan offers the most affordable monthly payments and has an interest subsidy, which means your loan balance won’t grow as long as you make your monthly payments.
• Other IDR plans: Plans like Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Income-Contingent Repayment (ICR) each have slightly different terms.
Strategies for repay student loans faster:
To minimize the amount of interest you are paying on your loans, here are some tactics:
Pay extra. Even small, additional payments can make a major difference, cutting your repayment time and interest costs. You can also use a “debt snowball” or “debt avalanche” strategy.
Make bi-weekly payments. You can speed up paying of your loans by paying half of your monthly payment every two weeks, thanks to which you will make an extra full payment each year.
Refinance private loans. If you have a solid income and good credit, you may be able to refinance private loans with a new lender for a lower interest rate. Be careful not to refinance federal loans if you want to keep their unique benefits.
Depending on your career path, you might qualify for loan forgiveness programs.
If you work for a government agency or an eligible non-profit, thanks to Public Service Loan Forgiveness (PSLF), you could have your remaining federal loan balance forgiven after making 120 qualifying monthly payments.
Employer repayment assistance or benefits are now offered by some companies to help employees manage their debt.
In order to best manage your student loan repayment, it is important to contact your loan servicer, since they are your primary point of contact for exploring and enrolling in repayment plans.
Creating a budget and knowing your monthly cash flow is key for knowing how much money you can realistically put towards repaying your loans
Beware of scams. There is rarely any need to pay for assistance that your loan servicer can provide for free.
StudentAid.gov offers a loan simulator tool that lets you compare different repayment plans to find the best fit.
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