Our debt counselors know that student loan payments can be crushing for many. The only way to stay afloat is to have a solid plan. Therefore, being knowledgeable about student loan repayment tips is crucial to successfully repaying those loans.
Student Loan Repayment Tips
Here are some quick bullet points for choosing a Student Loan Repayment Plan. Note that these student loan repayment tips are only applicable for federal loan repayment.
Use a Repayment Calculator
Student loan holders can find a simple loan repayment calculator and other useful information at StudentLoans.gov. To use the payment calculator, borrowers can either sign in or can manually input their loan info. However, you will need to know the following to manually calculate repayments.
- Loan types
- Loan balances
- Interest rates
- Relevant tax filing info
The calculator shows multiple monthly payment amounts based on different repayment plans available. This way, you can see an accurate estimation of what the monthly student loan expense is depending on the plan you choose. Borrowers should choose the plan with the highest amount that they can afford to pay each month. This is because the more you pay each month, the less you pay in interest over time.
Loan Forgiveness Programs
Borrowers should try to find out if they qualify for loan forgiveness. The most common program is the Public Service Loan Forgiveness (PSLF). This program forgives the remaining balance after borrowers make 120 on-time payments. Borrowers qualify by working full-time for tax exempt 501c3 non-profits, government organizations, the military, the Peace Corps, and other public service professions.
Keep in mind, you must stay employed full-time by a qualifying employer for the entire 10 years you are paying towards your loans before they are forgiven. Interest will still accrue even if you are in a forgiveness program. Your entire balance, including the interest, will be forgiven at the end of the 10 years. However, you may fail to qualify at certain points. Then, you are responsible for the remaining balance and interest. Income-based repayment is the best option for anyone who qualifies for loan forgiveness for a 10 year period.
Basic Repayment Plans
The standard repayment plan will have your loans paid in 10 years with a fixed monthly payment and the least amount of interest accrued based on your current interest rates. A graduated plan will accrue more interest, but you will have lower payments initially with steadily increasing payments over the course of the 10-year term of repayment. These plans are best for paying the least in interest and fully paying your loans within 10 years. Either of these plans can extend into a 25-year term, but borrowers will pay significantly more in interest over the life of the loan.
Income based repayment (IBR) or pay as you earn (PAYE) plans are valid on two conditions:
- If you qualify for eventual loan forgiveness
- If you absolutely cannot afford to make the minimum payments of a standard or graduated plan.
Income contingent repayment plans result in a lot of interest charges and take significantly longer to pay off. However, the payment plans can fit within a budget that suits your income. A person’s income is calculated based on how they file their taxes. Therefore, if they file jointly with a spouse, the repayment amount is based on the combined household income.
Learn more student loan repayment tips with American Consumer Credit Counseling. If you’re struggling to pay off debt, schedule a free credit counseling session with us today.