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In the span of one decade (2009 to 2019), student loan debt increased by 107 percent. At the end of 2009, Americans’ total amount of student loan debt was approximately $772 billion. Only 10 years later, 2019 ended with Americans holding a whopping $1.6 trillion in debt.
This rapid increase in student loan debt can be attributed to a variety of factors. One of the most significant has been continued cuts and lack of higher education funding from state and federal governments.
Many of these cuts were made after the 2008 recession, but funding has not caught up in the years since. In fact, state funding for public colleges was $7 billion less in 2018 than in 2008.
The simple fact of the matter is that, for most students, the decision to attend college comes with debt. And while student loan debt can feel overwhelming, you can pay it off. It will take patience and dedication, but it will also be worth it when you’re debt-free.
Some student debt relief could potentially be coming, which could help you. But there’s no guarantee of that happening. As a result, it’s better to take your future into your own hands and figure out how to pay off student loans yourself. These tips can help you get started on your plan.
Understand what type of loan you have
Before you start making a plan to pay off your student loan, the first step is to understand what type of loan you have. Different loan types come with different repayment options, including grace periods, early payment fees and more.
There are generally two types of student loans: federal and private.
Federal loans
A federal loan is given out by the U.S. Department of Education. Federal loans typically have lower interest rates and more flexible payment options. To qualify for a federal student loan, you need to complete a Free Application for Federal Student Aid (FAFSA) application. This application analyzes you and your family’s income, as well as other factors.
Once you graduate, you can choose from various repayment plans, such as an income-based repayment plan or a pay-as-you-earn payment plan. Additionally, most student loans come with a grace period. For the first six months after graduation, you’re not required to make payments. However, interest will usually accrue during this grace period.
Private loans
Private student loans can be issued by any private lender, such as a financial institution or credit union. Students typically turn to private lenders when they are denied a federal student loan or need more money on top of their federal loan. There are a few disadvantages to private loans, including:
When you’re ready to pay off your student loan, take the time to familiarize yourself with your loan’s specifications. Important details include if you have a grace period, when interest begins accruing, what repayment options you have and more.
Always make at least the minimum payment—if not more
Any time you miss a credit or loan payment, you get a negative item on your credit report. This negative item drops your credit score and can stay on your credit report for up to seven years. For that reason, you must always make the monthly minimum payment on your student loans.
If your lender offers the option, set up automatic payments so you never miss one. And if at all possible, try to make more than just the minimum payment. Every time you pay more than the minimum amount, it can be applied to the principal of your loan. This reduces your loan much quicker.
Remember to always contact your lender and tell them to apply the extra payment to your current balance. If you don’t, the lender may apply the additional amount to next month’s payment. And if that happens, your extra payments won’t speed up your repayment plan at all.
Come up with a budget and repayment plan that work for you
You can’t tackle your student loan without a plan. In the personal finance community, there are two popular approaches to paying off debt: the snowball method and the avalanche method.
Both approaches are relatively easy to understand, and you can choose the method that works best for you. With the debt avalanche method, you:
The debt snowball approach is a little different:
The debt avalanche method prioritizes high-interest debt so you pay less interest overall during your debt-payoff journey. However, the snowball approach is preferred by many for its psychological benefits. Often, the debts with the highest interest can be huge and take years to pay off.
The snowball debt repayment approach allows you to start with the smallest debt so you feel accomplished and motivated as you pay off each debt. The idea is that those small wins will give you the drive to keep going.
Choose one approach and outline a timeline for when you’ll pay off your debt. Draft your plan for extra payments, too.
Consider refinancing
If you have a stable income and a good credit score, refinancing may be a good option. Note that you can only refinance with a private lender. So, if you have a federal student loan, you would be refinancing and transferring it to a private lender.
The process of refinancing is using your good credit history to acquire a better interest rate on your loans. Even a small decrease in interest can save you a lot of money in the long run. Let’s say you have a $25,000 loan with nine years of payments left at an interest rate of 4.53 percent. Now, if you can refinance down to four percent in interest, you’ll save $678 over the nine years of your loan.
Consider consolidating
If you have several student loans at varying amounts and interest rates, consolidation may be beneficial for several reasons. When you consolidate, you give one lender your entire sum of debt. As they get to make more interest off you, they can often give you an interest rate lower than what you had with your smaller debts. This can save you hundreds or thousands of dollars in interest over the life of your student loan repayment.
Additionally, debt consolidation can help you make your whole repayment process more straightforward. As you only have one lender and one payment to worry about, you:
Ask about autopay
If you have a federal student loan, your loan servicer should lower your interest rate by a certain amount if you enroll in autopay for your loan. You can reach out to your lender directly to find out more information about this option.
Some private lenders may also offer this discount, but it’s less common.
Find out if you qualify for student loan forgiveness
There are several student loan forgiveness programs. Note that these programs are only available for federal loans. The programs include:
Many of these programs have particular requirements. Do some research into each program to understand if you qualify for any of them.
Take control of your student loans
Your student loans can feel like a scary, looming threat. Whether the number is small or large, it can feel overwhelming to understand where to start. However, the sooner you begin addressing the problem, the sooner you’ll be free, so you should explore all of your options. The quicker your loan is gone, the sooner you can focus on other financial goals.
Contact the advisors at CreditRepair.com today to learn more about how we can help you and your finances.
