With the help of student loans, you've achieved your objective: You earned your degree. It took long nights, hard work and enough money that you could have held your own mini-lottery. Now, it's time to start the gruelingly arduous task of repaying the federal and private financial institutions that made it possible. The average $28,950 in student loan debt may seem an insurmountable obstacle, but don't lose any more sleep. Get.com will show you how to put your numbers into perspective, one dollar at a time.
Knowing Your Options, Numbers And Terms
First of all, you have more options for repaying your student loans than one standard 10-year repayment plan. As long as you keep your loan current, you can contact your loan servicer and switch to a different plan at any time as long as your loan is eligible. Options can extend the length of the loan or change the structure of the repayment plan's term:
- Standard: Up to 10-year term, with fixed payments of at least $50 a month.
- Graduated: Up to 10-year term, with payments increased every 2 years.
- Extended: Up to 25-year term, with payments fixed or graduated.
- Income-Based: Up to 20-year term, with maximum payments adjusted to 15 percent of discretionary income; previous loans offered 25-year terms.
- Pay as You Earn: Up to 20-year term, with maximum payments adjusted to 10 percent of discretionary income.
- Income-Contingent: Up to 25-year term, with payments recalculated each year to correlate to financial situations.
- Income-Sensitive: Up to 10-year term, with payment increases correlating to wage increases.
To determine which would work best, use a student loan repayment estimator to calculate your numbers, and pay attention to those total interest paid figures.
Paying It Down
Depending on your financial situation, you might want to consider adding to the minimum payments. Student loans usually have no penalties for early repayment. By applying additional money (even small amounts) to the principal, you can shorten the term of the loan, reduce the total amount of interest paid and potentially save yourself thousands of dollars.
For example, if your loan was for the average $28,950:
- Under a standard 10-year fixed-payment plan at 5-percent interest, your monthly payment would be about $307.
- At the end of the term, you would have paid nearly $7,900 in interest for a total of $36,850.
- However, if you were to pay an additional $100 each month toward principal, you could cut the term from 10 years to 7 and reduce the interest paid to $5,456 and the total amount paid to $34,406 – a savings of nearly $2,500 and 3 years.
If you pay on multiple loans, put the extra toward the one with the highest interest rate. If you're still in school and have unsubsidized loans, interest is already accruing on your loan. While you can't make payments on the loan itself, you can pay that interest to keep your balance from growing.
Consolidating Student Loans
When you're making payments on concurrent multiple student loans, interest rates are higher on some, lower than others, and all may be more expensive than current offerings. Due dates may coincide (or straggle) either option interfering with cash flow. If you're constantly struggling to keep up with payments, a direct consolidation loan may help, especially if new loan interest rates have fallen. All your student debt is combined into one monthly payment, one interest rate, one balance and a term that extends up to 30 years. You will, however, surrender any rebates or discounts associated with the original loan agreements, as the consolidation yields a whole new loan contract.
Making Forgiveness A Career
Don't: Defaulting on a student loan is simply not an option. Failing to make payments will put your loan in default, and you'll have to find another lender to settle it, most likely under less favorable terms. The default will adversely affect your credit rating, and even if you declare bankruptcy, your student debt will remain.
Maybe: If you're having problems making your payments, in some cases, you can apply for deferment or forbearance. With either one, you gain permission to delay payment for a specified period of time, usually 12 months.
Do: Another option is to pursue student loan forgiveness. Financial hardship and public service are both qualifications for forgiveness as long as your loan is current. If you work for certain employers or take a job in underserved areas in need of your skills, you may be eligible to apply for reimbursement of a portion of your student debt or, in some cases, your entire loan amount under the appropriate student debt forgiveness program. Teachers, health professionals, veterinarians, lawyers, individuals who work for governmental or nonprofit bodies, those who serve in the military and even individuals working in the automotive aftermarket industry may all be eligible.
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Adam Luehrs is a contributing writer at GET.com. Email: firstname.lastname@example.org.Editorial Disclosure: Any personal views and opinions expressed by the author in this article are the author's own and do not necessarily reflect the viewpoint of GET.com. The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author's alone, not those of the companies mentioned, and have not been reviewed, approved or otherwise endorsed by any of these entities.