Student Loan Repayment Tips You Need to Know

Managing student loans requires careful planning. Loan payments must be scheduled to coincide with income sources, such as stipends. Loan servicers should be contacted to learn about options like repayment plans based on income and Public Service Loan Forgiveness.

Budgeting allows borrowers to pay more than the minimum monthly payment, reducing their timeline and saving on interest costs. Other tips include using a debt avalanche approach, which applies extra payments to the highest-interest loans first.

1. Use an Income-Driven Repayment Plan

One of the best ways to repay student loans efficiently is by using an income driven repayment plan. These plans lower your monthly payments based on your income and family size. If you have federal student loans, there are several options available to you. The Department of Education’s Loan Simulator can help you determine which plan would work best for your situation.

When you apply for an income driven repayment plan, your servicer will take into account your current earnings, family size and other factors. You will need to recertify your income each year, and your payments may change. If you miss your recertification deadline, interest could be capitalized onto your principal balance.

Income driven repayment plans typically last for 20-25 years. Once the repayment period ends, any remaining debt is forgiven. It’s important to remember that these plans are only available on federal student loans, and not private ones. While these plans lower your payments, they do not impact your credit score. As long as you make your payments on time, it won’t hurt your credit score to use an income driven repayment plan.

2. Consider Loan Forgiveness Options

Whether you’re in an income-driven repayment plan or not, it can be helpful to consider student loan forgiveness options. These programs typically allow you to have a portion of your student loan debt forgiven if you work in certain jobs, such as public service or teaching.

For example, Public Service Loan Forgiveness is available after you’ve made 120 qualifying payments on a 10-year standard repayment plan while working for a federal, state, local or tribal government or nonprofit organization. Make sure you’re on the right track by submitting employment certification forms to your loan servicer every year and any time you change jobs.

Other loan forgiveness options include military and teacher loan forgiveness, which can help you pay off your loans faster by lowering or deferring your monthly payments. It’s important to remember, though, that interest will still accumulate during these periods, so you should try to make as much principal payment as possible when you’re able. You can also request short-term relief like deferment or forbearance from your loan servicer. Use the government’s loan simulator to see how your bill would be affected before making a request.

3. Budget for Payments

Before you start to make payments, you should create a budget. This will help you understand how much income and expenses you have each month. Ideally, you should list out all of your essential expenses, such as rent, utilities and food, and then subtract your student loan payments from the total. Then, you can figure out how much discretionary spending is left over each month.

If you can, try to put any extra money toward your student loans. This can include any extra earnings from a second job, bonuses or tax returns. But before you do this, it’s important to note that student loan servicers may apply any extra money toward paying off late fees and accrued interest first.

If you find that your new spending plan includes a deficit after adding in your student loan payment, it’s time to make some cuts. This could include cutting back on non-essential spending, such as streaming subscriptions, gym memberships and dining out. It’s also a good idea to set up automatic bill payments to ensure that you always make your student loan payments on time.

4. Avoid Default

Defaulting on student loans can cause serious financial trouble. Federal loans are considered delinquent when they’re more than 270 days past due (approximately nine months). Once you reach this point, late fees and accrued interest add up quickly, increasing the amount you owe. Your lender can report your delinquency to the national credit bureaus, which will damage your credit score. It may also garnish your wages or tax refunds, take a portion of your Social Security benefits, and force you to agree to a settlement that pays less than you owe.

Avoiding default is one of the best ways to repay student loans efficiently. Start by determining how much you owe and what type of loans you have. Then, create a budget and prioritize essential expenses. Streamlining your spending by reducing unnecessary expenses like entertainment, streaming services, and vacations can help you allocate more money toward your student loan payments.

Then, sign up for auto pay on your loan servicer’s website to save 0.25% in interest each month. You can find your federal loan servicer by visiting the National Student Loan Data System. With private student loans, it’s best to contact your servicer directly.

5. Reduce Interest Costs

Tens of millions of Americans take out loans to pay for college. If you have student loans, reducing interest costs is an important way to repay your debt efficiently and protect your credit rating. From consolidating your loans to setting up autopay, there are many ways borrowers can reduce their interest rate and cut down on monthly payments.

One thing all borrowers should do is keep in touch with their loan servicers. Then, if something goes wrong with repayment – say you lose your job, move or change your phone number – your lenders can alert you. This is crucial to avoid late fees, penalty interest and other consequences.

While many of these tips may not be easy to implement, they can help borrowers manage their student loans more effectively and reach their goals of getting out of debt. It’s not impossible, either – borrowers can find ways to speed up the process with budgeting and side hustles. And for those who have a bit more motivation, there are even options like income-driven repayment plans and loan forgiveness to help them get out of debt sooner.