How To Manage Your Student Loans: A Series (Part 3)
Updated: Dec 16, 2020
If you’ve graduated college and are wondering what you can do to get rid of your student loans in the most effective way, you’ve come to the right place. In our 3rd and final part of our series on the best way to manage your student debt, we focus on what you can do about your loans after you’re done with school.Let’s get to it.
Hopefully you’ve had a chance to read the prior entries in this series and implement some of those recommendations or shared with your friends and family who could benefit from that insight. The bottom line? There are still things you can do after school to manage your student debt. Here are some of our best recommendations:
1. Look towards student loan forgiveness programs.
Get ready, because this is a mouthful - but there’s something called the Public Service Loan Forgiveness program, which will forgive the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualified repayment plan while working full-time for a qualifying employer. This is for student borrowers with federal loans who are employed full-time in an eligible state, local or federal public service job. 501(c)(3) non-profit jobs may qualify as well. If you want more in-depth information to understand whether or not you qualify, or perhaps how you can qualify, check out this link here: https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service
2. Don’t just pay the minimum.
Perhaps you don’t want to go the path of a government job and would prefer to pay off your loans the old-fashioned way. That’s alright - but don’t - and we cannot stress this enough - DON’T just stick with the minimum payment. Minimums are what you are required to pay but you’re allowed to pay more. Just as we mentioned in our previous blogs about this topic, the more you can pay upfront the more you will save in the long-run due to the impact interest has on your overall loan. Lowering your principal upfront means there’s a lower balance to apply interest to and thus your overall interest payment goes down. Furthermore, you’ll be able to accelerate the time it takes to pay off that total loan balance. To demonstrate the impact something like this could make, let’s say you had $60,000 of student loans with an interest rate of 8% with a standard 10-year repayment plan. If you were to simply pay an additional $100 more per month than your minimum payment requires, you could save over $5,000 in interest costs and pay off your loan a little over 2 years earlier than expected.
3. Consider refinancing your student loans.
Depending on the terms you received when you initially took out your loans, you may be able to find better rates after you’ve graduated. It doesn’t hurt to go shopping around just to see what’s available;you may be surprised with what you find. There are some lenders that may be able to offer interest rates as low as 2.06%, which is substantially lower than federal student loans and in-school private interest rates. There also may be variations with the underwriting criteria, so make sure you understand the requirements of the various lenders and figure out which ones you can qualify for. They may take into consideration a slew of different factors that may go into a lender’s decision such as your credit profile, minimum income, debt-to-income ratio and monthly free cash flow. Therefore we highly advise that you take great care of your financial health with a well-defined budget, a recommendation we previously mentioned in part 2 of this series (link to part 2). An additional bit of advice here is that if you want to maximize your chances of getting approved for a loan refinance, you may also want to consider getting a co-signer with strong credit as they can bolster your application. Good luck!
4. Enroll in an income-driven federal student loan repayment plan.
Similarly to the Public Service Loan Forgiveness program, this only applies to federal loans and is a repayment plan that is tied proportionally to your earnings. This program has quite a few different options. Those options are: Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE). Each of these options have slight nuances, but the overall benefit to you as the borrower is that after 20 to 25 years, any remaining balance on your loan will be forgiven while in the interim your payments are consolidated into more manageable monthly payments. It’s not all sunshines and rainbows though; there are some drawbacks to this option. For one, you need to sign up every year and if you happen to miss the deadline you may revert back to your original repayment plan. Additionally, if you get married and your spouse makes considerably more than you, it’s possible that you may no longer qualify. (Something to consider before you put a ring on it!) Lastly, if your loan balance is forgiven at the end of this program you will need to pay income tax on whatever is forgiven, meaning you’ll likely need to pay a high tax bill when that time comes - so be prepared.
Hopefully this series was helpful in allowing you to find ways to better manage your student loan situation. If it is, feel free to share this out with your friends and family who may be in a similar position so they can benefit as well. If you think there’s anything we missed feel free to mention your thoughts in the comments below. We’re here for you, and we’re in this together. Don’t forget to follow us on social for daily tips and to stay up to date on MyHomePathways news and our app launch.