Student Loan Debt Repayment Photo credit: ASSOCIATED PRESS
It’s time to pay off your student loans faster.
Here’s what you need to know.
Student Loan Repayment: Follow these 25 rules
Rule #1: Student loan repayment is an active process, not a passive one. If you invest the time and do the work, you can save money and pay off your student loan debt faster.
Rule #2: There are four primary ways to manage and repay your student loans. Make sure you understand all your options:
Student Loan Refinancing: How It Works
Rule #3: If you want a lower interest rate and a lower monthly payment, then student loan refinancing is the best strategy for you.
Rule #4: How Student Loan Refinancing Works. When you refinance student loans, you receive a new student loan, which is used to repay your existing federal student loans, private student loans or both. Your new student loan has a lower interest rate and may have a lower monthly payment too.
Rule #5: Student Loan Refinancing Eligibility. To qualify for student loan refinancing, you’ll need a strong credit profile (typically a 650 credit score or higher), be employed or you have accepted a written job offer, strong, recurring monthly income, and a demonstrated history of financial responsibility, among other requirements.
Rule #6: If you don’t meet these requirements, you can apply with a qualified co-signer who meets these requirements. Your co-signer will be financially responsible for the student loan, but can help you get approved and potentially receive a lower interest rate.
Rule #7: You can refinance both federal and private student loans. If you refinance federal student loans, you won’t have access to federal student loan repayment plans or forbearance. However, many lenders offer some form of unemployment protection if you lose your job. Plus, you can receive a lower interest rate, which saves you money.
Rule #8: Check Your New Rate First. Want to refinance your student loans? Check your interest rate for free online first, which takes about two minutes. If you like your new interest rate, complete an online application in about 10-15 minutes.
Rule #9: It’s always free to refinance your student loans so don’t ever pay a fee to refinance.
Rule #10: Do This: Compare monthly payments and calculate your savings with a student loan refinancing calculator.
Student Loan Consolidation: How It Works
Rule #11: Federal student loan consolidation is a tool that enables you to combine your existing direct, federal loans into a single Direct Consolidation Loan.
Rule #12: Consolidation enables you to organize all your separate student loans – each with different loan balances, interest rates and monthly payments – into a single student loan, interest rate and monthly payment.
Rule #13: Unfortunately, student loan consolidation through Direct Loan Consolidation won’t lower your interest rate or monthly payment.
Rule #14: What is the interest rate for Direct Loan Consolidation? The interest rate for a Direct Consolidation Loan is equal to a weighed average of the interest rates on your current student loans, rounded up to the nearest 1/8%.
Rule #15: So, with a Direct Consolidation Loan, you will make the same total monthly payment that you made prior to consolidation.
Rule #16: Howver, there will be fewer payments and payment dates to manage because you’ll make a single monthly payment to a single student loan servicer.
Rule #17: While a Direct Consolidation Loan helps you organize and manage your student loans, it does not save you any money.
Rule #18: Do This: If you consolidate, don’t ever pay a fee. It’s free to consolidate your student loans into a Direct Consolidation Loan.
Student Loan Repayment: How It Works
Rule #19: The federal government offers several income-driven repayment plans such as PAYE or REPAYE that enable you to lower your monthly payment based on your income. Plus, with certain federal repayment plans, the remaining balance on your federal student loans can be forgiven after 20 and 25 years. However, the amount forgiven may be taxable to you.
Rule #20: Unlike student loan refinancing, your monthly payment with an income-driven repayment plan is only temporarily lowered. Your interest rate remains the same, so interest is accruing even if you have a lower monthly payment.
Rule #21: Therefore, if you don’t wait the full 20 or 25 years for student loan forgiveness, then you will pay more for your federal student loans due to all the extra interest. With an income-driven student loan repayment plan, your monthly payment will be lower and the time period to repay your loans will be extended.
Rule #22: Therefore, focus on your total student loan balance – and not just your monthly payment. Most people focus on the latter, when they should focus on the former.
Rule #23: Remember this: the longer you take to pay off your student loans, the more interest you are being charged. So, a higher monthly payment is not always a bad thing if you can reduce your principal student loan balance.
Rule #24: Remember this: an income-driven repayment plan will not lower your interest rate or your overall payment.
Rule #25: Income-driven repayment plans apply only to federal student loans. If you face hardship with private student loans, you can contact your lender. You can also consider student loan refinancing to lower your interest rate.
Rule #26: Want to pay off your student loans faster? Refinance your student loans to shorter loan term such as less than 10 years. Or, you can prepay your student loans since there are no prepayment penalties to pay off student loans early.
Rule 27: Do This: Income-Driven repayment plans are free. Don’t pay a third party company to enroll you in these plans.
Student Loan Forgiveness: How It Works
Rule #28: Public Service Loan Forgiveness and Teacher Student Loan Forgiveness are two primary ways to receive student loan forgiveness if you work in these fields.
Rule #29: These programs only apply to your federal student loans. While there is no private student loan forgiveness, you can still receive forgiveness for your federal student loan and refinance your private student loans.
Rule #30: Do This: If you plan to enroll in Public Service Loan Forgiveness, make sure to complete an Employment Certification Form. If you have FFEL Loans, make sure to consolidate them first into a Direct Consolidation Loan.
Next Action Steps
Understand all your options. Develop your own student loan repayment plan. If you’re unsure where to start, this student loan repayment quizcreates a free, customized student loan repayment plan in less one minute to help you understand your options.