How to pay off student loans

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More than 43 million Americans are making payments on their student loans, whether they graduated from college last year or a decade ago. There’s no question that for some, student loan payments are a real struggle.

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The nearly two-year-long pause on federal student loan payments ends on May 1, following several extensions. In its statement, the Department of Education said this final extension “will allow the Administration to assess the impacts of the Omicron variant on student borrowers and provide additional time for borrowers to plan for the resumption of payments and reduce the risk of delinquency and defaults after restart.”

 

So, no matter whether you’re trying to dig out of a deep student-loan pit or you’re just beginning to set aside money, it’s time to devise a smart strategy for how to pay off student loans. Here are some ideas.

 

Related: A guide to student loan forgiveness

Paying Back Student Loans

This past spring, two-thirds of the respondents to a survey said they would have trouble resuming payments on their student loans following the end of the government’s pause, according to Pew Trusts. However, as onerous as they can be, student loans have to be dealt with. The alternative is fairly dire. If you are delinquent on your student loan payment for 90 days or more, your loan servicer will report the delinquency to the three major national credit bureaus. And should your student loans go into default, your tax refunds may be withheld, your wages may be garnished, and you may even end up in court.

 

One out of every ten Americans has defaulted on a student loan, and 7.8% of all student loan debt is in default, according to EducationData.org. It’s crucial to get out of default (and for those who are not yet in default but falling behind in their loans or in danger of doing so) to catch up as quickly as you can.

 

Paying off student loans early may reduce the amount of interest that accrues over the life of the loan and free up your money for spending on expenses, saving and investing.

5 Ways to Pay off Student Loans Faster

Paying off student loans with speed requires a multi-pronged approach, depending on where you are in your education and career. What works one year might not work the next. These five approaches outline different plans of attack.

1. Begin Payment As Soon As Possible

It’s possible to make loan payments while you’re still in school, though it’s not required. In fact, a six-month grace period goes with most federal student loans. You don’t have to make use of it, however.

 

If you can, while in school or during the grace period, try to pay at least enough to cover the amount of interest you’re accruing each month, advises the DOE’s Federal Student Aid. That way, less interest will capitalize and get added to your principal balance when you enter repayment.

 

Some students work a part-time job while still in college to get a leap on their loans.

2. Make More Than the Minimum Payment

Paying extra each month can reduce the interest you pay and reduce the total cost of your loan over time, says Federal Student Aid. If you can continue making monthly payments even if you have satisfied future payments, you will pay off your loan faster.

 

It’s important to notify your loan servicers to apply overpayments to your current balance and to ask if the additional payment amount can be allocated to your higher-interest loans first. One way to make it easier: Set up automatic payments based on the extra payment. This way you won’t be tempted to change your mind.

3. Use Your Tax Refund & Extra Money

Consider dedicating your tax refund to paying off some of your student loan debt. Part of the reason you may have received a refund in the first place is that you get a tax deduction for paying student loan interest, says Federal Student Aid. A regular side gig dedicated to your student loan will make it vanish faster.

4. Seek Out Loan Forgiveness and Repayment Options

Sometimes it’s impossible to not only pay extra on your loan but also to cover the minimum. Job loss or a change in life circumstances are crises that deal a heavy blow.

 

The federal government has income-driven repayment plans to help reduce student loan payments. Anything is better than falling into delinquency. After submitting the supporting documentation, you may qualify for lower monthly payments. There are other student-loan forgiveness and cancellation programs that, if you meet the requirements, could wipe out the balance of your debt and put you on the road to a post-student-debt financial life.

  • If you are employed by a U.S. federal, state, local, or tribal government or not-for-profit organization, you might be eligible for the Public Service Loan Forgiveness Program.
  • Under the Teacher Loan Forgiveness Program, if you teach full-time for five complete and consecutive academic years in a low-income school or educational service agency, and meet other qualifications, you may be eligible for forgiveness of up to $17,500 on your loans.
  • If your school closes while you’re enrolled or soon after you withdraw, you may be eligible for discharge of your federal student loan.

5. Refinance Your Student Loan

Refinancing offers shortcuts to some. With interest rates at low levels, a student loan refinanced with a private servicer may produce smaller payments and a shorter repayment time frame. If you choose a shorter term, it may actually increase your monthly payment, but your debt might be paid off faster and you might save money on interest.

 

The pros and cons to refinancing must be studied carefully. Once a federal loan is refinanced, you no longer qualify for federal loan forgiveness programs, both ones that exist now and ones that may be created in the future. Should President Joe Biden decide to grant student loan forgiveness to Americans holding debt — $10,000 is the number often cited — you would be ineligible for it.

The Takeaway

While the resumption of monthly payments on federal student loans may not come as good news for many people, it provides an opportunity to take a look at your payment strategy. Of course, the most important thing is not to become delinquent in payments or go into default.

 

To reap the benefits of paying off a student loan faster, pursue one or more of these five strategies: Begin payments as soon as possible, make more than the minimum payment, use your tax refund and extra money, seek out loan forgiveness and repayment options, and refinance your student loan.

 

Learn more:

This article originally appeared on LanternCredit.com and was syndicated by MediaFeed.org.

 

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Private student loan relief options

 

Private student loans can help fill the gap needed for students to pay for their tuition and living expenses, but they do not have the same relief programs that federal student loans provide.

 

Federal student loans offer more borrower protections after students graduate, especially if they face difficult economic circumstances such as the loss of a job, being furloughed from a position or if their salary is inadequate to pay all their bills.

 

When borrowers take out a federal student loan, they have a few different options to choose from such as forgiveness or deferment programs until their financial circumstances change.

 

Related: How do
student loans affect your credit score?

 

fizkes / istockphoto

 

The options for private student loan relief are fewer. Private student loan forgiveness does not exist and no lenders offer this option.

 

When graduates face hurdles in repaying their private student loans, some lenders provide their own temporary assistance programs. These programs may provide temporary assistance to borrowers and the programs will vary based on the lender.

 

DepositPhotos.com

 

Read the fine print on temporary relief programs offered by private lenders. Generally, interest will continue to accrue while the loan is in forbearance, which can make the loan more expensive in the long-term.

 

However, if you’re struggling to make repayments, securing forbearance could help provide breathing room to help you get back on track without missing payments.

 

If you are not sure whether or not the lender offers forbearance or other temporary assistance programs, try to contact them before missing any payments. They may have an option that could help or be willing to work with borrowers who are struggling.

 

Missing payments can potentially impact a borrower’s credit score. And if the borrower has a co-signer, their credit score may feel an impact as well.

 

Photobuay / istockphoto

 

The federal government has extended some relief options to borrowers with federal student loans due to the COVID-19 pandemic. Most of these policies do not apply to borrowers with private student loans.

 

As of March 2021, some borrowers with private student loans in default qualify to have their student loan payments paused. Borrowers with a defaulted loan made through the Federal Family Education Loan (FFEL) Program, may qualify for the federal protections offered. The FFEL program loans were made by private companies but were backed by the federal government. The program ended in 2010.

 

 

BackyardProduction / istockphoto

 

Since there aren’t any real loan forgiveness options available for borrowers with private student loans, repaying them may become a financial priority. The repayment period for private student loans may vary based on lenders, so review the terms and payment schedule with your lender.

 

Some private student loans may have a grace period—a period of time after a student graduates where payments are not due. This will depend on the lender, so review your loan terms to find out if your private loan is eligible for a grace period. Interest may accrue during the grace period.

 

DepositPhotos.com

 

Other strategies to that can help students as they repay their student loans include:

  • Budgeting with Purpose. Factor student loan payments into your budget and prioritize repayments.
  • Enrolling in automatic payments. This can help you avoid missing payments. Some lenders may even offer a rate discount to borrowers who do enroll, so it’s worth asking.
  • Funneling additional income to student loans. Influx in cash thanks to a recent birthday, tax refund, bonus at work? Make an overpayment to the student loan.
  • Consider refinancing. Student loan refinancing can help qualifying borrowers secure a more competitive interest rate or preferable terms. Lowering the interest rate on a student loan could help borrowers save money over the life of the loan.

 

 

DepositPhotos.com

 

Refinancing could result in a lower interest rate which could also lower the minimum monthly payment. In some cases, getting a lower monthly payment requires extending the life of the loan, which can ultimately cost more.

 

Student loan refinancing means a new loan is obtained at a new interest rate and possibly a new term or the number of years you have to pay off the loan.

 

Borrowers can generally choose between fixed or variable interest rates, depending on the options available at the lender they have decided to borrow from.

 

Private lenders will generally rely on information like a borrower’s credit score and employment history to determine how much money a person can borrow, and at what interest rate.

 

Borrowers who are able to secure a lower interest rate may find that refinancing can help them spend less over the life of the loan. Additionally, a borrower with multiple private student loans might appreciate the opportunity to streamline their monthly payments to a single sum with a single lender.

 

 

DepositPhotos.com

 

Some borrowers may be able to get some private student loan assistance, depending on the programs offered and policies in place with their private lender. In some cases, refinancing may make sense for borrowers who can qualify for a lower interest rate.

 

Learn More:

This article
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MediaFeed.org.

 

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IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE  FOR MORE INFORMATION.

 

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