Nearly 1 in 5 Americans have student loans. If you’re one of them, you’re clearly not alone. And with Biden’s federal student loan debt cancellation plan in flux (psst…the Supreme Court is expected to weigh in on its legality by the end of June), dealing with student debt can be that much more stressful and confusing. So, we teamed up with digital banking platform Laurel Road to break down five repayment strategies, outline the factors that can help you figure out which one’s right for you, and gather a few upcoming dates that could impact your plan.
1. Pursue loan forgiveness
Forgiveness isn’t just what you do after an argument, it’s also a student loan option where you reach a point when you’re no longer required to repay some or all of your loan. Here are two kinds to look into:
Public Service Loan Forgiveness (PSLF). If you work full-time for a gov employer or a non-profit, you might qualify. We’re talking police officers, educators, nurses, etc. PSA: You’ll have to make 120 qualifying payments before it kicks in.
Income-Driven Repayment (IDR) Plans. The federal gov offers four different plans, which calculate monthly student loan payments based on your income and family size. If your loans aren’t fully repaid at the end of the repayment period (which can be up to 20 or 25 years depending on which plan you choose), the remaining balance is forgiven. This is a great option if your debt is high compared to your income. Thing to know: You must be caught up on your payments to qualify.
2. Refinance to adjust your interest rate
Loan refinancing is kind of like a debt do-over. Think of it as breaking things off with your old loan and starting a relationship with a new loan with better qualities — err, terms. Refinancing can help you…
Lower your interest rate. If your income or credit score has increased recently, you may qualify for a lower interest rate. The lower your rate = the less interest you’ll pay over time.
Get a new kind of interest rate. Below are the pros and cons of two different types:
Variable interest rate. It fluctuates based on what the market’s doing. So as time goes on, your rate could drop, which means less money would accrue on your loan over time. Translation: You save money. But interest rates could rise, which would leave you paying more every month. One major con with variable rates? Not knowing the total repayment cost upfront.
Fixed interest rate. You’ll pay the same amount every month until your debt is repaid. The pros include a set monthly payment and an interest rate that never grows. The con is not being able to take advantage of market changes like you could with a variable rate.
3. Refinance to adjust your loan term
Refinancing can also help you adjust the length of your loan term. Adjusting it can mean you…
Lower your monthly payment. By extending the term of your loan, you’ll pay less each month. This means that while you’ll be paying less, you’ll be extending the life of your loan.
Pay off your loan earlier. If you’re ready to say ‘see you never’ to your student debt earlier, consider shortening your loan term. While you’ll have a higher monthly payment, you’ll be able to pay it off faster.
4. Simplify payments with loan consolidation
If you have multiple student loans, you probably have multiple monthly payments to different lenders. Consolidating your student loans allows you to combine them into one loan from a single lender. So you only have one monthly payment and one interest rate, making it a great option for anyone who has trouble keeping track of all their payments and/or thinks they may be able to lower their rate. But FYI: Private loans cannot be consolidated with federal loans.
5. Pause payments with loan forbearance
Loan forbearance means lowering or pressing pause on your student loan payments. You might qualify if you get hit with unforeseen medical expenses, experience a sudden change in employment, or start struggling with general financial hardship. Federal loan forbearance lasts 12 months, while some private lenders may offer ranges between 2–12 months. It can be a big help if you find yourself in a jam, but it’s not a long-term solution.
How to pick a student loan repayment strategy
Not sure where to begin? Step 1) Learn about your options. Aka what you’re doing right now. Step 2) Consider talking to an expert. Digital banking platform Laurel Road is now offering free student loan consultations through GradFin, one of the nation’s leading student loan consultation providers. Schedule a free 30-minute consultation here, and a student loan specialist will review your loan history, explain your options, and work with you to develop a personalized repayment plan. In the meantime, here are a few considerations that can help you narrow down your options…
Federal vs. private loans. Did you borrow from the federal gov or a private lender? Federal loans have fixed rates, and the amount you can borrow is set by the school. Private loans have fixed or variable rates, and you can borrow up to your school’s cost of tuition. It’s important to know what kind you have so you know which repayment plans you’re eligible for.
Your credit score. Lenders want to make sure you have a history of paying your bills. They might even give you better terms if you have a better score because it means you’ve got a solid track record of paying them on time. So take a look at yours (and do what you can to get it up) before making any changes to your repayment plan.
Financial goals. Think about what you’re trying to achieve. If you have a big expense coming up, you might want to extend the term of your loan so you can lower your monthly payments. If you’re trying to adhere to a monthly budget, it might help to have a fixed rate versus a variable one.
Dates to know
Student loan policy keeps making headlines, and we want to help you keep it all straight. Here are a few big changes on the horizon:
Payment pause scheduled to end June 30. The gov has extended the pandemic-era pause on student loan repayments a few times. Now, payments are set to resume two months after this date, or two months after the Supreme Court announces their decision — whichever comes first.
New rules scheduled to go into effect July 1. The Department of Education hopes to improve debt-relief programs by expanding eligibility, removing barriers, and establishing a fairer process for borrowers. Starting this summer, it could be easier to have your loans forgiven or get closer to forgiveness.
There are LOTS of ways to pay off your student loans. And while certain factors can help you choose the right one for you, it can be overwhelming to make the call on your own. Luckily, there are experts who can help. Cue sighs of relief.
Subscribe to Skimm Money
Your source for the biggest financial headlines and trends, and how they affect your wallet.