If you are like millions of Americans, you may be carrying large amounts of student loan debt. According to Forbes, the total amount of student loan debt in this country has reached $1.6 trillion. And graduates in the class of 2018 owed almost $30,000 once they left college, on average.
Here are some tips for proactively managing your student debt loans so that you can get ahead of them.
Don't Stretch Out Your Repayment Dates
You may be able to cut your monthly payment by extending the term of your loan. For example, you can substantially lower the amount you owe each month if you stretch your loan out from 10 years to 30 years.
Do not do this unless you are in a spot where you cannot pay the full amount you owe each month. Rolling out your repayment term will just mean that you have to pay more over the life of the loan. The faster you get your loan paid back, the quicker your credit score increases and you can use the money for other things.
Get an Income-Based Repayment Plan
According to the Department of Education, there are four different types of income-based repayment plans. These vehicles can limit your payments to no more than 10% of your discretionary income, enabling you to live your life without being choked by debt.
There are also various student loan forgiveness programs available to those who are on income-based repayment plans. There is some help for those who are in public service or government jobs and who make 120 months of qualifying payments. Regardless, you should not count on student loan forgiveness. Dave Ramsey advises that people should continue to use other strategies to get ahead on their student loan debt until the time where their debt is possibly forgiven.
Pay Ahead Each Month
Paying student loans ahead can mean a number of different things. One way to get out in front of the curve on your student loan payments is to pay a little bit extra each month. Putting in extra money will give you a cushion if you run into some problems down the line and cannot make a payment for some time. In addition, extra payments will also keep some interest from accruing on your student loans. This may not necessarily reduce your monthly payments right now, based on the way that the loan is amortized, but it will save you money as you get toward the end of your loan period.
Another way to pay ahead is to make biweekly payments as opposed to monthly repayment. Biweekly payments will give you two extra repayments each year and it can also reduce your interest rate because you have paid extra and early for some of your obligations.
Note that you will still need to be careful if you pay ahead and are hoping to take advantage of any student loan forgiveness plan that requires you to make 120 qualifying payments. The Department of Education has recently changed its rules to ensure that you are not penalized for paying your loans back early. Still, to be safe, College Investor advises that you should contact your lender and make sure that you are not in pay-ahead status.
Refinance Your Loans
If you are like every other person who owes student loans, you are likely inundated with offers to refinance your debt. You likely tear each one of these up and throw it out without looking at it.
However, if you overlook the chance to refinance your debt, you are missing out on the opportunity to take advantage of historically low interest rates. This option is best for you if you have private student loans, especially those at a variable rate.
One thing that is critical to look at with refinancing is the total amount that you will owe between the time that you take the loan and the time that it will be fully paid. Many issuers tell you that they are saving you money by cutting your monthly payment. However, they are also rolling out your repayment term, meaning you could still pay more overall.
Set Up Automatic Payments
Many student loan issuers are willing to pay you to convince you to take the step of setting up automatic payments. They will usually give you a break on the interest rate that you pay that can average .25%. This may not seem like a lot, but it can easily exceed several dollars each month. If you have six-figure student loan debt, this can add up to hundreds of dollars each year.
Why would they want to do this? Your student loan issuer definitely wants to ensure that you pay on time every month and that your account does not go into default. It gives them peace of mind that you will pay when you link your loans up to your checking account.
There is no reason whatsoever not to take advantage of this discount. Even if issuers were offering nothing, setting your loans up on automatic payment will keep you from missing a payment deadline because you forgot to send the check by the deadline.
https://www.forbes.com/sites/zackfriedman/2020/02/03/student-loan-debt-statistics/#434e18c7281f https://studentaid.gov/manage-loans/repayment/plans/income-driven https://www.daveramsey.com/blog/how-to-pay-off-student-loans-quickly https://www.nerdwallet.com/article/loans/student-loans/pay-off-student-loans-fast https://thecollegeinvestor.com/19797/pay-ahead-status-loan-forgiveness/
Provision of the calculator on this page is not an offer of credit. Its use in no way guarantees that credit will be granted. This calculator is solely for informational purposes and provides reasonably accurate estimates; the calculations are not intended to be relied upon as actual loan computations.