3 Simple But Effective Tips for Dealing with Student Loans

July 9, 2017 at 10:09 AM Leave a comment

College education costs a great deal of money – whether college is worth the cost is another debate entirely. You’ll most likely have some amount of student loan debts unless you have rich parents (willing to foot the bill), rich (like Zuckerberg who recently graduated from Harvard), or you win a scholarship covering your tuition. Student loans can be a huge burden on your finances especially if you don’t land your dream job.

In fact, if you don’t make smart financial decisions, student loan debt can weigh down your credit score and the pool of loans that you can access will be greatly reduced. However, you don’t need to bury your head in the sand because you have student loan debt. This piece provides three insights on how you can take proactive steps to reduce your student loan burden.

  1. Refinancing your student loans is a great idea

Student loan repayments tend to be one of the biggest monthly expenses and you’ll struggle financially if your expenses are more than your income. However, you can reduce the strain that student loans place on your finances by reducing your student loan interest rate and monthly payments. Student loan refinancing is the smartest way to reduce the interest rate and monthly payment you make on your student loans.

Most of the firms who offer refinancing programs on student loans often have interest rates between 2.50% to 3.00% so your interest payments won’t be as much as the expected interest on federal government loans. You can also choose a variable or fixed interest rate and you have the liberty to choose the term of your loan for up to 20 years. However, the Federal government doesn’t offer an official refinancing offer but private lenders will be happy to help you refinance your student loans.

  1. Federal repayment plans MAY lead to loan forgiveness

The federal government understands that many Americans are struggling with student loans. In fact, about 44 million Americans are indebted up to $1.4 trillion in student loans. Some repayment programs being offered by the federal government won’t necessarily help you help get out of debt faster but they can help you secure loan forgiveness if you make consistent effort to repay your loan. You may also be eligible for public service student loan forgiveness if you are teacher or work as a public servant.

The Pay As You Earn (PAYE) program ties your monthly loan payments to the total amount borrowed, family size, and your income. Payment is capped at 10% of your income and you can get loan forgiveness after 20 years. The Revised Pay As You Earn (REPAYE) program can help you cap your monthly payments at 10% of your discretionary income and you’ll be eligible for loan forgiveness after 20 years. You may also want to consider the Income-Based Repayment (IBR) plan in which your monthly payment tied to your income, family size, and total loan burden. Under IBR, you won’t be eligible for loan forgiveness until after 25 years.

  1. Extra payments are good if you can make the stretch

If you want to get out of student loan faster, your best bet is to make extra payments as much as possible. You can make extra payments in terms of extra monthly payments and you can make extra payments in terms of lump sums. The fact that student loans do not attract prepayment penalties means that you can may more each more without incurring fees. Of course, you’ll need to tell the loan servicer to apply the extras toward paying down your principal.

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